GLOSSARY

A

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

Interior construction materials and labour not included in a Landlord’s “normal or typical” construction work letter or allowance letter, subject to negotiation between Landlord and Tenant.

Absolute Energy

The total amount of energy consumed by an entity and those deemed to be within its organisational boundaries.

Absorption

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

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.

Accounting Standards Update (ASU)

A document issued by the Financial Accounting Standards Board (FASB) in the United States, which details accounting standards and guidance on selected accounting policies set out by FASB. See www.fasb.org

Acquisition

Purchase of an interest in an asset in exchange for consideration paid.

Acquisition Costs

The costs associated with purchasing a property, such as solicitor’s and estate agent’s fees.

Acre

A unit of land that equals 43,560 square feet, or 4,047 square meters.

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.

ADC Arrangements

An ADC arrangement is an arrangement in which a bank (lender) provides financing for real estate acquisition, development, or construction purposes and has virtually the same risks and potential rewards as those of owners or joint ventures. There is often little risk in such arrangements to the borrower. The lender may advance all or substantially all the necessary funds to complete a project (including fees and interest), may have a share in the residual profits of the project (an equity “kicker”), and must look to the eventual sale or refinancing of the property for repayment of the advances. Such transactions are often structured in a manner that makes default unlikely because there is no requirement for the borrower to make payments while the project is in progress. ADC arrangements should be reported as loans, real estate ventures, or direct investments in real estate in accordance with guidance presented by the AICPA in a Notice to Practitioners issued in February 1986.

Additional Contingent Interest

Lender participation in the appreciation in value of the underlying property in a participating loan (REIS).

Additionality

The positive impact that would not have occurred without the investment. Real Estate impact investment strategies may ensure additionality by creating additional affordable housing, social housing, healthcare or education or by investing in real estate to improve its environmental performance.

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.

Affordable Housing

Affordable housing refers to housing units that are affordable to buy or rent by the low-income section of a society (for example, whose income is below median household income). Affordability is defined with a maximum percentage of gross income which may differ from country to country and also depending on whether this is a percentage of net, gross, individual or household income.

Alienation

Sale of freehold or leasehold interest (Compare also Assignment).

Allocated Loan Amount

The amount of Loan attributed to a particular portion of the underlying collateral, usually a single property within a portfolio of underlying assets.

All-in Interest Rate

The percentage rate charged by a Lender which includes the reference rate (e.g. LIBOR / EURIBOR / SONIA) plus a margin.

Allocated Loan Amount

The amount of Loan attributed to a particular portion of the underlying collateral, usually a single property within a portfolio of underlying assets.

All Risks Yield (ARY)

A conventional real estate metric that uses annual rental revenue to determine the capital value of an investment. ARY comprises both gross and net yields. The net yield includes the deduction of some expenses – surveyors’ fees, management fees, repairs, running costs – which are not deducted in the gross yield. Investors and valuers use ARY in decision-making to pinpoint probable risks in any investment. The yield is usually derived from comparable evidence and encapsulates future expectations of the investor regarding income and capital growth, the qualities of the property and the tenant. But these factors are not explicitly quantified in this unit of comparison. Instead they are implicitly handled by adjusting the yield. Initial, term and reversion yields are all examples of all risks yields.

Alternative Investment Fund (AIF)

The European Securities and Markets Authority (ESMA) defines AIF as any collective investment undertaking, including investment compartments thereof, which raises capital from a number of investors with a view to investing it in accordance with a defined investment policy for the benefit of those investors and which does not require authorization pursuant to European regulation (see https://www.esma.europa.eu)

Alternative Investment Fund Manager (AIFM)

A specific form of a management company authorized to manage an alternative investment fund (AIF) in the context of European regulation (see https://www.esma.europa.eu).

Amortization Period

Number of months used to calculate the amount of monthly payments for principal and interest which could be longer than the loan term.

Anchor

A major tenant in a retail centre or prime tenant in a building, shopping centre, or development. Anchor tenants generally are department stores, drugstores and grocery stores.

Anchor Tenant

The primary and usually the largest tenant in a shopping centre. Larger shopping centres may have more than one anchor tenant. Rent for anchor tenants is often significantly lower than rent for other tenants in a shopping centre because they draw consumers to the centre.

Ancillary Costs

Development costs over and above direct building costs such as site clearance, landscaping and so on.

Annualised Total Return

The geometric average amount of money earned by an investment each year over a given time period. The annualized return formula is calculated as a geometric average to show what an investor would earn over a period of time if the annual return was compounded.

Appraisal / Appraiser

A valuation of property, such as real estate, a business, collectible, or an antique, by the estimate of an authorised person. The authorised appraiser (i.e. RICS Registered Valuer) must have a designation from a regulatory body governing the jurisdiction of the appraiser. (See also Asset Valuation and Qualified Valuer and RICS Valuer Registration and Valuation)

Appreciation

An increase or decrease in value of an asset. Appreciation may be attributable to improvement or deterioration in the financial performance of the asset or changes in the market value for the asset.

Arbitrage

A method of dealing in (typically large quantities of) financial assets in order to secure a profit from a (usually small) variation in the price quoted in different markets.

Arm’s Length

A description of a market transaction that takes place between parties that are believed to have no connection or special relationship.

”As Is” Condition

The acceptance by the tenant of the premises in their existing condition at the time the lease is executed. This would include acceptance of any physical defects, code violations, or other problems with the physical and legal condition of the premises.

Assessment

A fee imposed on property, usually to pay for public improvements such as water, sewers, streets, improvement districts, etc.

Asset-Backed Securities (ABS)

A security issued as part of a securitisation, which is backed by a portfolio assets, which may or may not be income generating.

Asset Liability Matching (ALM)

A form of risk management which entails managing assets and cash flows to satisfy liabilities.

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 Company (or Property Manager)

A legal entity that specialises in the tactical management of a vehicle’s assets on behalf of the owner of the real estate. Services may include strategic input and production of asset level business plans, appointment of third party service providers at asset level as well as reporting activities at asset level.

Asset Management Fee

A fee charged to investors based on the amount invested into real estate assets for the fund or account.

Asset Manager (or Property Manager)

The tactical management of investments and their related properties, within an overall portfolio. The asset manager will commonly oversee the work of the property manager, manage the overall relationship with tenants, and develop and monitor specific business, investment and financial plans related to individual investments within a portfolio.

Asset Originator

The party that has created a loan asset or group of assets by extending credit to one or more creditors.

Asset Turnover

Calculated as total revenues for the trailing 12 months divided by the average total assets.

Assets Under Management (AUM)

The current market value of real estate assets for which a manager has investment and asset management responsibilities.

Asset Valuation

Undertaken on behalf of a company for the purpose of reporting the financial value of a property held as a tangible fixed asset. Complex especially commercial and development property valuations require extensive knowledge and skills to ensure that all features and issues relating to a particular property are covered and acknowledged in the final figure. (See also Appraisal and Qualified Valuer and RICS Valuer Registration and Valuation)

Asset Weighted

An averaging technique whereby numerical characteristics (such as interest rates or rents) of a group of assets are averaged in proportion to each asset’s common characteristic (such as asset value or square feet).

Asset Weighting Methodology

Asset weighting of the portfolio returns within a composite using beginning-of-period weightings, beginning of period market values plus weighted cash flows, or by aggregating portfolio assets and cash flows to calculate performance as a single master portfolio.

Asset-Weighted Composites

An aggregation of individual portfolios representing a similar investment objective or strategy, weighted by the beginning-of-period market values of the constituent portfolios.

Assignee name

The individual or entity to which the obligations of a lease, mortgage or other contract have been transferred.

Assignment / Transfer Clauses

Transfer of ownership of a leasehold interest in a property between an assignor (the transferor) and an assignee (the transferee).Typically an assignment is an agreement to transfer all of the rights (but not the obligations) under a contract to a new lender evidenced by an assignment agreement. The specific definition will be governed by local law.

Attachment Point LTV

The LTV point at which the Senior loan ends and Junior loan starts, for example 55% LTV would typically be the detachment point of a senior loan and the attachment point at which the junior loan would start.

Attorn

To turn over or transfer to another money or goods. To agree to recognize a new owner of a property and to pay him/her rent. In a lease, when the tenant agrees to attorn to the purchaser or foreclosing lender, the lessee accepts the successor party as landlord.

Audit costs

Costs associated with annual external audit engagements and other audit services provided (both paid to independent third party firms or manager/advisor).

Available Office Space

Describes office space that is vacant and available for lease but that may or may not be ready for occupancy (i.e., under construction, needs to be built-out to Tenant’s specifications or requires remodelling). The term is used both as a description and as a statistic of office space available at a particular time.

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 Rent Per Square Foot

Presented as part of a financial analysis on the economic terms of a lease, it represents the aggregate rent calculated to a particular point in time (five years) and adjusts this total by dividing by the number of years up to that point and the total number of square feet being leased to give the average rent per square foot.

Average Total Assets

Calculated by adding the total assets of a company for the five most recent quarters and dividing by five.

B

Balloon Payment

A large principal payment that typically becomes due at the conclusion of the loan term. Generally, it reflects a loan amortized over a longer period than that of the term of the loan itself (i.e. payments based on a 25 year amortization with the principal balance due at the end of 5 years).

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 condition or state of a person (individual, partnership, corporation, etc.) who is unable to repay it’s debts as they are, or become, due.

Bankruptcy

Proceedings under 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 Interest

Contractually stated fixed or floating rates in a participating loan.

Base Principal Balance

The original mortgage amount adjusted for subsequent fundings and principal payments without regard to accrued interest or other unpaid debt.

Base Rate

Underlying interest rate (i.e. set by the Bank of England).

Base Rent

A set amount used as a minimum rent in a lease with provisions for increasing the rent over the term of the lease.

Base Year

The year of building operation, usually a calendar year, in which the Landlord “fixes” or identifies the operating costs that are included in a gross or semi-net lease. Increases in operating expenses above the base year are passed through to Tenants, based on their pro rata share of a building.

Below-Grade

Any structure or a portion of a structure located underground or below the surface grade of the surrounding land.

Benchmark

A point of reference against which an Account’s performance and/or risk is compared.

Beneficiary

An employee covered by an employee benefit plan.

Beta

Also referred to as “the Beta coefficient,” Beta is a statistical term used by money managers operating in the tradable equities securities market. Essentially, Beta is a measure of the volatility, or systematic risk, of a particular security or a portfolio in comparison to the market as a whole. Beta typically is used as a component of the capital asset pricing model (CAPM), which calculates the expected return of an asset based on its beta and expected market returns. Beta is calculated using regression analysis in an attempt to quantify the tendency of a security’s returns to respond to swings in the market. A beta of 1 indicates that the security’s price will move in lock step with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security’s price will be more volatile than the market. For example, if a stock’s beta is 1.2, it’s theoretically 20% more volatile than the market. Utilities stocks typically have a beta of less than 1. Conversely, the majority of high-tech, typically Nasdaq-based stocks have a beta of greater than 1. Stocks with a beat of greater than 1 are believed to offer the possibility of a higher rate of return, but also require the investor to assume higher risk.

Bid

An offer, stated as a price or spread, to buy whole loans or securities.

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.

Borrower

The party borrowing money from a Lender. (CREFC, CRE Glossary of Terms, EU Version).

Borrower Sustainability Credentials

Data that reflects the sustainability performance of a borroweror sponsor and can include, but is not limited to, a corporate ESG rating and benchmarking scheme such as CDP or GRESB, among others.

Borrower Sustainability Scorecard

Document that outlines key sustainability attributes and risks of a borrower/sponsor.

Break Costs

The cost payable by a borrowerfor early repayment of all or a portion of a loan as outlined in the break clause of the loan agreement.

Break Option

Some leases include an option for the landlord and/or the tenant to terminate the lease before it expires. The option usually defines the period of notice to be given and may be subject to financial penalties if exercised.

Break-Even Rent

The rent that would need to be achieved when letting a new development to ensure the profit margin is maintained.

Bridge Loan

A short term loan used as interim financing, pending the arrangement of larger or longer-term financing.

Broker

An individual who acts on behalf of another person as an agent to locate, negotiate for lease, purchase or sell office space, buildings, land or any other real estate. A person who acts as an intermediary between two or more parties in connection with a transaction.

Brokerage

Providing an individual to act on behalf of another person as an agent to locate and negotiate for the purchase, sale or lease of real estate. A broker performs a unique service of matching a purchaser and seller of real estate and, in effect, is the catalyst that makes a real estate transaction happen. Also, brokerage is the term for the fee or commission paid to a broker at the conclusion of a real estate transaction.

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 (or Build-to-Rent)

A method of leasing property whereby the developer/landlord builds to a tenant’s specifications.

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 Classifications

Building classifications in most markets refer to Class “A”, “B”, “C” and sometimes “D” properties. While the rating assigned to a particular building is very subjective, Class “A” properties are typically newer buildings with superior construction and finish in excellent locations with easy access, attractive to credit tenants, and which offer a multitude of amenities such as on-site management or covered parking. These buildings, of course, command the highest rental rates in their sub-market. As the “Class” of the building decreases (i.e. Class “B”, “C” or “D”) one component or another such as age, location or construction of the building becomes less desirable. Note that a Class “A” building in one sub-market might rank lower if it were located in a distinctly different sub-market just a few miles away containing a higher end product.

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.

Bullet Loan

Any short-term, generally five to seven years, financing option that requires a balloon payment at the end of the term and anticipates that the loan will be refinanced in order to meet the balloon payment obligation. Essentially, should the refinancing not be available, often due to the property not performing as anticipated, the borrower is “shot” and the property is subject to foreclosure. An example of this is when a developer borrows to cover the costs of construction and carry-costs for a new building with the expectation that it would be replaced by long-term (or “permanent”) financing provided by an institutional investor once most of risk involved in construction and lease-up had been overcome resulting in an income-producing property.

Bullet Repayment

A facility where the repayment (principal or principal and interest) is made in one amount on the final maturity date of the loan agreement.

Business Rates

Property tax paid by occupiers of business premises (i.e.in England and Wales).

C

Call Date

Periodic or continuous rights given to the lender to cause payment of the total principal balance prior to the maturity date.

Cap Rate

The capitalization rate (or “cap” rate) for a property is determined by dividing the property’s net operating income by its purchase price. Generally, high cap rates indicate higher returns and greater perceived risk.

Capital Appreciation

The change in market value of a property or portfolio adjusted for capital improvements and partial sales.

Capital Expenditures (CAPEX)

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 Expenses

This type of expense is most often defined by reference to generally accepted accounting principles (GAAP), but GAAP does not provide definitive guidance on all possible expenditures. Accountants will often disagree on whether or not to include certain items as a capital expense or as an operating expense. For example, roof replacement is usually considered a capital expense, where roof maintenance or repair would likely be considered an operating expense.

Capital Expenditure (Capex) Facility

A loan that must be used for capital expenditure (i.e. investment in physical assets such as land, buildings and equipment).

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.

Capitalisation Rate

The capitalization rate (or “cap” rate) for a property is determined by dividing the property’s net operating income by its purchase price. Generally, high cap rates indicate higher returns and greater perceived risk.

Capital Structure

The structure describing the various components of an asset’s financing. These may comprise senior debt, sunior debt, preferred equity and common equity.

Caps (Interest)

An interest hedging instrument that provides for maximum increases allowed in interest rates, payments, maturity extensions and negative amortization on reset dates.

Carried Interest

A re-allocation of profits from the investor’s capital account to the asset manager capital account based on the ability of the latter party to outperform a certain predetermined benchmark. Carried interest is structured as a re-allocation of equity within the capital accounts rather than a straight charge to the investment manager generally due to tax purposes.

Carve-Outs (in Lending)

Provisions within nonrecourse commercial real estate loans where the borrower may become personally liable in the event of certain egregious acts (e.g. fraud). Recently, lenders have expanded the scope of carve outs to include risks of exposure to the property’s economic deterioration or neglect.

Cash Sweep

The right to redirect cash from an underlying asset to meet debt service obligations where the borrower is unable to fulfil its debt service obligations.

Carrying Charges

Costs incidental to property ownership, other than interest (i.e. taxes, insurance costs and maintenance expenses), that must be absorbed by the landlord during the initial lease-up of a building and thereafter during periods of vacancy.

Cash (or Funds) Available for Distribution

Cash (or Funds) available for distribution (CAD or FAD) is a measure of a REIT’s ability to generate cash and to distribute dividends to its shareholders. In addition to subtracting from FFO normalized recurring real estate-related expenditures and other non-cash items to obtain AFFO, CAD (or FAD) is usually derived by also subtracting nonrecurring expenditures.

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.

Catch-Up

Catch-up takes effect when an investor’s returns reach the defined hurdle rate, giving them an agreed level of preferred return. The manager then enters a catch-up period, in which it may receive an agreed percentage of the profits until the profit split determined by the carried interest agreement is reached.

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 11 (in the USA)

That portion of the Federal Bankruptcy code that deals with business reorganizations. Chapter 7 is that part of the Federal Bankruptcy code that deals with business liquidations.

Chapter 7 (in the USA)

That portion of the Federal Bankruptcy code that deals with business liquidations. Chapter 11 is that part of the Federal Bankruptcy code that deals with business reorganizations, meaning that the debtor continues its business during and after bankruptcy.

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.

Claw Backs

A reduction to previous received or allocated performance fees or carried interest due to investment performance falling below predetermined benchmarks.

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

An investment Vehicle with a fixed amount of capital and a finite life. Limited liquidity, with the redemption of units provided for at the end of the life of the Vehicle.

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.

Club Deal

Informal industry term used to describe an investment Vehicle or structure (often a fund) with generally a limited number of investors investing in a common strategy. Typically, investors have more discretion and control than in a typical fund, and have veto rights over major decisions.

Collateralised Mortgage Obligation (CMO)

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.

Commercial Real Estate

Buildings or land intended to generate a profit for investors, either from rental income or capital gain. Types of commercial real estate include office buildings, retail properties, industrial properties, apartments and hotels, as well as specialty niche property categories such as healthcare, student housing, senior housing, self-storage, data centers and farmland.

Commercial Real Estate Broker

A commercial real estate broker is a licensed professional who helps clients purchase, sell, or lease properties that will be used for business purposes. They represent and act as mediators between buyers and sellers.

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.

Commercial Mortgage-Backed Securities (CMBS)

A security which is backed by a portfolio of mortgages secured against commercial properties.

Commonhold

A form of property ownership introduced in England and Wales in 2004 which involves the freehold tenure of part of a multi-occupancy building with shared ownership of and responsibility for common parts.

Community Center (in Retail)

In addition to convenience goods, provides for the sale of goods such as apparel or furniture. Typical area is 100,000 to 350,000 square feet with two or more anchor tenants.

Comparables

Lease rates and terms of properties similar in size, construction quality, age, use, and typically located within the same sub-market and used as comparison properties to determine the fair market lease rate for another property with similar characteristics.

Compensation Prepayment Proceeds

Payments which are required to be used in mandatory Prepayment.

Composite

A composite is an aggregation of one or more portfolios into a single group that represents a particular investment objective or strategy.

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.

Conditions Precedent

Conditions of a loan facility agreement which must be fulfilled prior to a borrower being able to drawdown principal amounts under the loan.

Conditions Subsequent

Conditions which cannot be satisfied prior to entering into a loan and which have to be satisfied within a certain period of time following entry into the loan. Failure to satisfy these conditions, within an agreed timeframe, is typically an event of default.

Conduit

An alliance between mortgage originators and an unaffiliated organisation 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

When the actual construction process is overseen by aqualified construction manager who ensures that the various stages of the construction process are completed in a timely and proper manner, from obtaining construction permit to completion of the construction, to the final inspection and approval of the completed premises with the tenant. The fee for construction management is often paid to a property manager or other qualified professional.

Construction Starts

The total number of buildings that broke ground (commenced construction) over a given period. The starts are typically measured in number of buildings and square feet.

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 a fixed market basket of goods and services purchased by a specified population during a “base” period of time. It is not a true “cost of living” factor and bears little direct relation to actual costs of building operation or the value of real estate. The CPI is commonly used to increase the base rental 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.

Contingency Allowance

Money put aside in the development costs to help pay for any unforeseen expenditure.

Contingent Interest

A percentage of property net income or cash flow after debt service in a participating loan.

Contingent Liabilities

An existing condition, situation, or set of circumstances involving uncertainty as to possible outcome (such as Guarantees and/or Carve-Outs) to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur.

Contract Documents

The complete set of design plans and specifications for the construction of a building or of a building’s interior improvements. Working Drawings specify for the contractor the precise manner in which a project is to be constructed.

Contract Rent

The rent specified in the lease contract at the valuation date (see also rent passing and term rent)

Contractual Interest

The base or minimum interest rate paid exclusive of amounts payable as a result of the participation feature.

Contractual Principal

The nominal principal of a loan exclusive of amounts payable as a result of any participation feature.

Controlling Equity Interest

An ownership position that meets the requirements of control according to the governing accounting literature.

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

Typically includes the four major property types — specifically office, retail, industrial and multifamily. Core assets are high-quality, multi-tenanted properties typically located in major metropolitan areas and 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 investments are unleveraged or very low leveraged and generate good, stable income that, together with potential appreciation, is expected to generate total returns in the 7 percent to 10 percent range. (Note: In today’s low-yield environment, many investors are willing to accept core property returns below 8 percent.)

Core Investment

An investment in a high-quality real estate asset that is located in a highly accessible and highly desirable submarket. The asset commands among that submarket’s highest rents and requires virtually zero near-term capital expenditures. The asset is at least 80 percent leased, carries long-term leases with creditworthy tenants, and is among the most sought-after assets in the market, suggesting there is significant market liquidity.

Core Real Estate (Return: from 3-5% / LTV: around 25% / Risk: low and about 18 year super cycle)

It is the bedrock of a diversified portfolio. Its real estate that’s located in the strong demand urban center of major metropolitan areas (London, Paris, Frankfurt, New York, Los Angeles, Washington DC etc.), and rented out to credit worthy tenants. Due to the high tenant demand, core investments are almost as safe as bonds, but with much higher returns. Often the tenants (like a Starbucks franchise) are backed up with a rent guarantee from the parent company (Starbucks Inc.), which protects the investor if the tenant leave. Unlike the stock market, core investments hold up extremely well in business cycle downturns. Core investments are considered to be the least risky because they often target stabilized, fully leased, secure investments in major core markets. These include properties with long term leases in place to high credit tenants and Class A buildings in highly desirable locations. These buildings are often well kept and require little to no improvements on behalf of the new owner. Therefore, these type of real estate investments generally do not experience significant appreciation in value but rather provide stable, predictable cash flow with relatively low risk. This type of investment suits investors who seek capital preservation and long hold periods, and often warrants low leverage acquisitions. While these types of investments may seem less attractive when compared to higher yielding commercial real estate opportunities, many investors view them as attractive investments for the level of risk they provide when compared to other investment opportunities in the marketplace such as corporate bonds and publicly traded equities. While core investments in commercial real estate are typically not as liquid as securities offered on an exchange, they are generally the most liquid assets when compared to value add and opportunistic projects because they are stabilized, attractive, marketable assets. Core investments are the most “all weather” of the strategies, and have the longest window for good timing. (Compare to Core Plus / Value Added / Opportunistic Real Estate)

Core Plus Real Estate (Return: from 5-7% / LTV: 40-50% / Risk: low to moderate  and a bit less than 18 year super cycle)

It is similar to core, but not quite as high quality. The property might be in the suburbs, or a secondary metropolitan area. The tenant may not be quite as high quality, or may not have a rent guarantee from high quality national company. Or it might involve a property type that is riskier than one of the big four, such as self storage, entertainment, medical offices, or student housing. A core plus property is actually the interjacent alternative that lies between core and value-add. These properties are cash flowing but definitely have the ability to increase cash flows through improvement. Maybe the wall covering in the foyer of a single-family property is in great shape but outdated. Or the metal halide lighting in an industrial building works fine but is not as energy efficient as fluorescent fixtures. The property also doesn’t require the hefty re-do budget of the opportunistic property, but simply need a minor tweak instead of a wholesale overhaul. (Compare to Core / Value Added / Opportunistic Real Estate)

Cost

The financial expenditure used to produce something.

Cost Approach (In Valuation Technique)

Based on the amount that currently would be required to replace the service capacity of an asset (often referred to as current replacement cost).

Cost of Capital

The cost to a company, such as a REIT, of raising capital in the form of equity (common or preferred stock) or debt. The cost of equity capital generally is considered to include both the dividend rate as well as the expected equity growth either by higher dividends or growth in stock prices. The cost of debt capital is merely the interest expense on the debt incurred.

Cost Of Development Portfolio

All costs paid up in relation to all assets under development.

Costs Of Sale

An estimate of the incremental direct costs to transact the sale of the property. These costs generally include brokerage commissions, closing costs and fees, and other necessary disposition expenses.

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-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.

Covenant Of Quiet Enjoyment

The old “quiet enjoyment” paragraph, now more commonly referred to as “Warranty of Possession”, had nothing to do with noise in and around the leased premises. It provides a warranty by landlord that it has the legal ability to convey the possession of the premises to Tenant; the landlord does not warrant that it owns the land. This is what landlord agrees to provide as consideration for the tenant’s obligation to pay rent. If the landlord breaches this covenant, it may constitute an actual or constructive eviction.

Coworking

Coworking spaces, simply put, are shared workplaces. Coworking is a concept whereby those who are self-employed or working for different employers rent out space in the form of seats, desks or private offices from operators, typically on a monthly basis.

Credit Default Swap (CDS)

A financial derivative product that transfers credit risk from one counterparty to another.

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.

Credit Rating

Assessment of the creditworthiness of a Borrower in general terms or with respect to a particular debt or financial instrument, usually issued by an independent rating agency such as S&P, Moods or Fitch.

Creditworthy Tenant

A tenant with a business that has been in existence for numerous years, that has strong financial statements, or that has a large market presence that could be rated as investment grade by a rating agency. Financial and business stability implies that the tenant is highly likely to honour its lease commitment; the tenant is, therefore, viewed as a low-risk renter. Buildings with credit tenants as anchors are considered less risky investments for lenders.

Cross-Collateralisation

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.

Cure Rights

Cure Rights are designed to remedy a breach of a financial covenant and, within an agreed timeframe, avoid the occurrence of an event of default as a result of such breach.

Currency Exposure

Amount of foreign currency as a ratio of the vehicle currency, expressed as percentage of NAV.

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.

D

Deal Structure

With regard to the financing of an acquisition, deals can be unleveraged, leveraged, traditional debt, participating debt, participating/convertible debt or joint ventures.

Debenture

A debenture is a type of instrument which usually contains charges and assignments over all assets and rights of the chargor.

Debt Fund

See Debt Vehicle.

Debt Service

The outlay necessary to meet all interest and principal payments during a given period.

Debt Service Coverage Ratio (DSCR)

The annual net operating income from a property divided by annual cost of debt service. A DSCR below 1 means the property is generating insufficient cash flow to cover debt payments.

Debt Vehicle

A fundor similar entity that has been set up for the purposes of issuing or investing in loans.

Debt Yield

Property’s operating income as a percentage of the total principal loan amount. (Compare to Net Debt Yield)

Dedicate

To appropriate private property to public ownership for a public use.

Deed

A legal instrument transferring title to real property from the seller to the buyer upon the sale of such property.

Deed In Lieu Of Foreclosure

A deed given by an owner/borrower to a lender to satisfy a mortgage debt and avoid foreclosure.

Deed Of Trust

An instrument used in place of a mortgage by which real property is transferred to a trustee to secure repayment of a debt.

Default

The general failure to perform a legal or contractual duty or to discharge an obligation when due. Some specific examples are: 1) Failure to make a payment of rent when due. 2) The breach or failure to perform any of the terms of a lease agreement.

Deferred Maintenance Account

An account a borrower is required to fund that provides for maintenance of a property.

Deficiency Judgment

Imposition of personal liability on a borrower for the unpaid balance of mortgage debt after a foreclosure has failed to yield the full amount of the debt.

Defined-Benefit Plan

An employee’s benefits are defined, either as a fixed amount or a percentage of the beneficiary’s salary at the time of retirement. Pension plans, Health and Welfare plans, and some Keogh plans are established as defined benefit plans.

Defined-Contribution Plan

An employee’s benefits at retirement are determined by the amount contributed by the employer and/or the employee during his or her employment tenure, and by the actual investment earnings on those contributions over the life of the fund. Examples include 401(k), thrift plans and profit sharing plans (in the USA).

Demising Wall

The partition wall that separates one tenant’s space from another or from the building’s common areas.

Depreciation

Spreading out the cost of a capital asset over its estimated useful life or a decrease in the usefulness, and therefore value, of real property improvements or other assets caused by deterioration or obsolescence.

Derivative Securities

Securities that are created artificially, i.e., derived from other financial instruments. In the context of CMBS, the most common derivative security is the interest-only strip.

Deposit Account

This is one of the accounts the borrowers may be required to maintain. If relevant, it is principally used for holding amounts to be applied in prepayment.

Depreciation

The diminution in value caused by the physical deterioration and obsolescence that a building undergoes during its life.

Depreciated Replacement Cost

The current cost of reproduction or replacement of a property less deductions for all relevant forms of obsolescence.

Derived Demand

Demand created in a market to help meet other demands. For example, the demand for factories is derived from the demand for manufactured goods.

Developer

An entrepreneur who is responsible for the creation and renewal of properties. Two types can be distinguished: the ‘investor-developer’ who retains completed schemes as part of an investment portfolio and the ‘traderdeveloper’ who disposes of completed schemes in order to raise collateral for the next development.

Development

The process by which buildings are constructed for occupation or for sale / investment. Property development for occupation and investment is like any other economic activity – satisfying needs through the allocation of scarce resources.

Development Facility

A loan provided to finance the development of a real estate asset.

Development Yield

Rent achieved upon letting a new development divided by the cost of the development. This is often calculated for the benefit of investor developers
(Compare also Developer).

Diminishing Returns

The law of diminishing returns or diminishing marginal returns refers to the principle that, in a production system, having fixed and variable inputs, keeping the fixed inputs constant, as more of a variable input is applied, each additional unit of input yields less and less additional output.

Direct Property Investment

Investment in physical properties as opposed to indirect property investment.

Discount Margin

Rate above your floating benchmark rate.

Discount Rate

Rate at which a cash-flow is discounted to present value.

Discounted Cash Flow (DCF)

The flow of cash given by holding an investment. DCF starts with the outgoing cost of the asset including associated purchaser’s costs, the received income for every recorded period (month/quarter/year), including changes in income (rent reviews/void periods/capital receipts) less outgoing costs (agents fees/ground rents/refurbishment costs). The cash flow will typically end with a sale price of the asset plus associated costs. DCF is a cash-flow expressed in present values by discounting.

Design/Build

A system in which a single entity is responsible for both the design and construction. The term can apply to an entire facility or to individual components of the construction to be performed by a subcontractor; also referred to as “design/construct.” This sometimes refers to a project constructed by a developer for a prospective buyer’s
specific requirements on a turn key basis.

Discount Rate

A yield rate used to convert future payments or receipts into present value.

Discretion

The level of authority granted to an adviser or manager over the investment and management of a client’s capital. A fully discretionary account typically is defined as one in which the adviser or manager has total ability to invest and manage a client’s capital without prior approval of the client.

Disposals Account

The Disposals Account is used to hold the proceeds of disposal of a Property pending prepayment of Loans.

Distraint

The act of seizing personal property of a tenant in default based on the right and interest a landlord has in the property.

Diversification

The process of consummating individual investments in a manner that insulates a portfolio against the risk of reduced yield or capital loss, accomplished by allocating individual investments among a variety of asset types, each with different characteristics.

Dividend

Cash or stock distribution paid to holders of common stock. REITs must pay at least 90 percent of their taxable income in the form of dividends.

Dividend yield

The annual dividend rate for a security expressed as a percent of its market price (annual dividend/price = yield).

Dividend-Ex Date

The first date on which a person purchasing the stock is no longer eligible to receive the most recently announced dividend.

Dollar Stop

An agreed money amount of taxes and operating expense each tenant will pay on a prorated basis.

DownREIT

A downREIT is structured much like an UPREIT, but the REIT owns and operates properties other than its interest in a controlled partnership that owns and operates separate properties.

Drag-Along Rights

The right that enables a majority shareholder to force a minority shareholder to join in the sale of a company. The majority owner doing the dragging must give the minority shareholder the same price, terms and conditions as any other seller.

Dual Capitalisation

Using the profits method of valuation the net adjusted profit can be split into two components and capitalised separately. This is normally done so that the element of profit to be (notionally) paid as rent can be capitalised at a lower rate than the remaining profit return to the operator.

Dual Rate

Traditional approach to capitalising a profit rent from a leasehold interest where the return of capital is calculated at a lower rate than the return on capital.

Due Diligence

Activities carried out by a prospective purchaser or mortgager of real property to confirm that the property is as represented by the seller and is not subject to environmental or other problems. In the case of an IPO registration statement, due diligence is a reasonable investigation by the parties involved to confirm that all the statements within the document are true and that no material facts are omitted.

Due On Sale

A covenant that makes a mortgage due if the property is sold before the maturity date.

E

Earnest Money

The monetary advance of part of the purchase price to indicate the intention and ability of the buyer to carry out the contract.

Easement

A right created by grant, reservation, agreement, prescription or necessary implication to use someone else’s property. The right over a property to do or prevent something. A right of way or a right to fish are typical examples of easements.

Economics

A social science studying the way in which individuals and societies choose among the alternative uses of scarce resources to satisfy wants.

EBITDA

Earnings Before Interest, Taxes, Depreciation and Amortization. This measure is sometimes referred to as Net Operating Income (NOI).

Economic Feasibility

The feasibility of a building or project in terms of costs and revenue, with excess revenue establishing the degree of viability.

Economic Rent

The market rental value of a property at a given point in time. Also sometimes referred to as scarcity rent. The surplus earned by any factor of production over and above the minimum earnings necessary to induce it to do its work.

Effective Date

The date on which a registration statement becomes effective and the sale of securities can commence.

Effective Gross Income (EGI)

The total income from a property generated by rents and other sources, less a vacancy factor estimated to be appropriate for the property. EGI is expressed as collected income before expenses and debt service.

Effective Gross Rent (EGR)

The net rent generated, after adjusting for tenant improvements and other capital costs, lease commissions and other sales expenses.

Effective Rate (or Effective Annual Interest Rate or Effective Interest Rate or Annual Equivalent Rate)

The real return on a savings account or any interest-paying investment when the effects of compounding over time are taken into account. It also reveals the real percentage rate owed in interest on a loan, a credit card, or any other debt.

Effective Rent

Rent net of financial concessions, such as discounted rent-free periods, i.e. the market rental value of a property at a given point in time.

Efficiency Factor (Core Factor or Rentable/Usable (R/U) Factor)

Represents the percentage of Net Rentable Square Feet devoted to the building’s common areas (lobbies, rest rooms, and corridors). This factor can be computed for an entire building or a single floor of a building. Also known as a Core Factor or Rentable/Usable (R/U) Factor, it is calculated by dividing the rentable square footage by the usable square footage.

Efficiency Ratio

The ratio between net and gross internal area which provides a measure of how efficiently the space in a building can be used.

Elective Stock Dividend

Elective stock dividends are dividends comprised of a combination of cash and stock. Under IRS Revenue Procedure 2008-68, so long as a REIT provides its shareholders with a choice between cash or stock (and so long as at least 10 percent of the total dividend is available in cash), the entire dividend distribution is treated as a distribution of cash for purposes of the tax rules to qualify as a REIT.

Electronic Authentication

Any of several methods used to provide proof that a particular document received electronically is genuine, has arrived unaltered and came from the source indicated.

Elements of Comparison (or Comparables)

Specific characteristics of properties and transactions that cause prices to vary, for example, the nature of the legal rights conveyed, location, physical and economic characteristics and use.

Encroachment

The intrusion of a structure that extends, without permission, over a property line, easement boundary or building setback line.

Encumbrance

A right to, or interest in, real property held by someone other than the owner that does not prevent the transfer of fee title.

Endowment

A fund that is made up of gifts and bequests, which are subject to a requirement that the principal be maintained intact and invested to create a source of income for an organization. Institutions of higher education, for example, have endowments to fund research, scholarships and other activities.

Entity Investing

An investment in an entity, such as a company or partnership, that controls an investment rather than directly in the underlying assets. An investment entity is an entity that does both of the following: Pools funds from an investor or investors and provides the investors with professional investment management services; and commits to its investors that its business purpose and only substantive activities are investing the funds for returns from capital appreciation, investment income, or both. An investment entity and its affiliates do not obtain or have the objective of obtaining returns or benefits from their investments that are either of the following: Other than capital appreciation and investment income; and not available to other noninvestors or are not normally attributable to ownership interests.

Environmental Impact Statement

Documents required by federal and state laws to accompany proposals for major projects and programs that will likely have an impact on the surrounding environment.

Equated Yield (or Target Rate of Return)

Discount rate selected by an investor, often based on a risk-free base rate plus risk premium but may be derived from comparison with other investments. It is the internal rate of return of a growth explicit cash-flow. The equated yield is the yield on a property investment which takes into account growth in future income. (This is not applicable to reversionary situations, where the increase in income on reversion is to the market value as estimated at the present time.)

Equitization

The process by which the economic benefits of ownership of a tangible asset, such as real estate, are divided among numerous investors and represented in the form of publicly-traded securities.

Equity

The residual value of a property beyond mortgage or liability.

Equity Market Cap

The market value of all outstanding common stock of a company.

Equity REIT

A REIT which owns, or has an “equity interest” in, rental real estate (rather than making loans secured by real estate collateral).

Equivalent Yield

Single yield that can be used to capitalise both the term and reversionary incomes. It is the internal rate of return of a growth implicit cash-flow, meaning that any future growth in the income stream is allowed for in the choice of the yield. Most reversions occur within a 5-year period due to frequency of rent reviews so, unless the reversion is many years away or the term income is very low compared to the reversionary income, the equivalent yield will be very close to the yield used to value the reversionary income stream.

ERISA (Employee Retirement Income Security Act in the US)

Legislation passed in 1974 and administered by the Department of Labor that controls the investment activities primarily of corporate and union pension plans. More public pension funds are adopting ERISA-like standards.

Escalation Clause

A clause in a lease that provides for the rent to be increased to reflect changes in expenses paid by the landlord such as real estate taxes and operating costs.

Escrow Agreement

A written agreement made between an escrow agent and the parties to a contract setting forth the basic obligations of the parties, describing the money (or other things of value) to be deposited in escrow, and instructing the escrow agent concerning the disposition of the monies deposited.

Estimated Rental Value (ERV)

The open market rent that a property can be reasonably expected to attain given its particular characteristics, condition, amenities, competitive position, location, and local market conditions. In other words, it is the market rental value for the particular property at a given point in time.

Estoppel Certificate

A signed statement certifying that certain statements of fact are correct as of the date of the statement and can be relied upon by a third party, including a prospective lender or purchaser.

Event of Default (EOD)

Contractual breaches or other events the occurrence of which gives the lender the right to demand a full and immediate repayment of the loan (subject to cure rights). These are defined within the loan agreement.

Exchange Price

See Price

Exclusive Agency

A generic term for a representation or listing agreement between landlord and a broker, providing that such broker is the only broker hired to list the property for sale or lease, and if a buyer or tenant is procured by the exclusive agent or any other broker, the landlord is obligated to pay its exclusive agent a commission. In many US states, an exclusive agency allows the landlord to procure a tenant without the assistance of the broker, without liability for commission.

Exclusive Agency Listing

A written agreement between a real estate broker and a property owner in which the owner promises to pay a fee or commission to the broker if specified real property is leased during the listing period.

Exclusive Right to Sell or Lease

A broad form of exclusive listing between owner and broker such that if a tenant or purchasers is procured during the term of the listing by the broker, the owner, or by anyone else (including another broker), then the owner is obligated to pay the listing broker a commission on the transaction.

Exclusive Use Clause

A clause that may be included in a lease (usually retail) specifying that the business of the tenant is exclusive in the property and that no other tenant operating the same or similar type of business may occupy space in the building or shopping center. This clause benefits service-oriented businesses desiring exclusive access to the building’s population (i.e. travel agent, deli, and other retail uses).

Existing Use Value (EUV)

This is a basis of value published by the RICS for valuing business premises under the assumption that alternative uses are disregarded.

Exit Strategy

Strategy available to investors when they desire to liquidate all or part of their investment .

Exit Value

The market value of a property at the end of an assumed holding period.

Exit Yield

The yield used to capitalise the projected rent at the end of a holding period to calculate the exit value.

External Works

Development costs not directly attributable to the main building construction such as car-parking, access roads and so on.

F

Face Rental Rate

The asking rental rate published by the landlord.

Facility Agent

in syndicated facilities (more than one lender) the Facility Agent is the party which acts as an agent for all lenders in dealings with the borrower.

Facility Space

The floor area in hospitality properties dedicated to operating departments such as restaurants, health clubs and gift shops that service multiple guests or the general public on an interactive basis not directly related to room occupancy.

Factors Of Poduction

Often grouped under four headings – land, capital, labour and entrepreneurial ability – these are the resources, or inputs, of any economic activity.

FAD (Funds Available for Distribution)

Funds from operations less deductions for cash expenditures for leasing commissions and tenant improvement costs.

FAD Multiple

Share price of a REIT divided by its funds available for distribution.

Fair Market Value

The sale price at which a property would change hands between a willing buyer and willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts.

Fair Value

The price at which a property could be exchanged between knowledgeable, willing parties in an arm’s length transaction, regarded as synonymous with the IVSC definition of market value.

Fannie Mae (FNMA in the US)

The Federal National Mortgage Association – A quasi-governmental corporation authorized to sell debentures in order to supplement private mortgage funds by buying and selling FHA (Federal Housing Administration) and VA (Veterans Affairs) loans at market prices.

Fee Simple Interest

When an owners owns all the rights in a real estate parcel.

FFO (Funds From Operations)

A ratio intended to highlight the amount of cash generated by a company’s real estate portfolio relative to its total operating cash flow. FFO is equal to net income, excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization.

FFO Multiple

Share price of a REIT divided by its funds from operations.

Fiduciary

The Employee Retirement Income Security Act (ERISA) in the US defines a fiduciary as any person who exercises any discretionary authority or control over a plan’s asset management, administration or disposition, or renders investment advice for a fee or other compensation with respect to a plan’s assets. Fiduciaries may include staff, trustees, investment board members, administrators, consultants, actuaries and investment managers. ERISA permits civil action to be brought by a beneficiary against any fiduciary that has breached its fiduciary duty. Fiduciaries can be held personally liable for any losses to a plan resulting from such breach.

Finance Charge

The amount paid for the privilege deferring payment of goods or services, including any charges payable by the purchaser as a condition of the loan, or charges accruing on above standard tenant improvements made by a landlord at tenant expense, i.e. repaid in rent.

First Generation Space

Generally refers to new space that is currently available for lease and has never before been occupied by a tenant.

First Ranking Mortgage (or Senior Mortgage / Debt)

A fixed security interest over property which ranks in priority to all other claims.

First-loss Position

The position in a security that will suffer the first economic loss if the underlying assets lose value or are foreclosed on. The first-loss position carries a higher risk and a higher yield.

Fixed and Floating Charges Over Assets

Security over an asset. A fixed charge is security over a specific asset of a borrower. A floating charge is a charge over all the borrowers asset. Both only crystalize in the event of default.

Fixed Costs

Costs, such as rent, which do not vary with changes in the level of sales or production and would continue if the entity produced and sold nothing at all.

Fixed Rate

An interest rate that remains constant over the term of the loan.

Fixtures, Fittings & Equipment (FF&E)

Items associated with a particular trade operating from a property and which are usually transferred with the property when the business is sold as a going concern (Compare also Plant and Machinery),

Flat Fee

A fee paid to an adviser or manager for managing a portfolio of real estate assets, typically stated as a flat percentage of gross asset value, net asset value or invested capital.

Flex Space

A building providing its occupants the flexibility of utilizing the space. Usually provides a configuration allowing a flexible amount of office or showroom space in combination with manufacturing, laboratory, warehouse distribution, etc. Typically also provides the flexibility to relocate overhead doors. Generally constructed with little or no common areas, load-bearing floors, loading dock facilities and high ceilings.

Flexi-Lease

A generic term used to describe modern business leases that are short and include incentives such as rent-free periods and options such as break clauses.

Flexibility for alternative use

Refers to the flexibility of the property’s physical structure and the ease with which it might be converted or adapted for another use (e.g. adapting a retail building for use as an office building).

Flexible Office Space

Office space offered by an operator at flexible conditions in terms of lease terms, number or workstations and pricing. Flexible office space users also benefit from the operator′s existing office infrastructure and other services.

Floor Area Ratio (FAR)

The ratio of the gross square footage of a building to the square footage of the land on which it is situated.

Force Majeure

A force that cannot be controlled by the parties to a contract and prevents them from complying with the provisions of the contract. This includes acts of God such as a flood or a hurricane, or acts of man such as a strike, fire or war.

Foreclosure

The process by which the trustee or servicer takes over a property from a borrower on behalf of the lender.

Forward Commitments

Contractual obligations to perform certain financing activities upon the satisfaction of any stated conditions. Usually used to describe a lender’s obligation to fund a mortgage.

Forward Sale

The sale of a property development to an investor or owner-occupier before completion.

Foundation

A foundation is a nonprofit organisation that raises money and invests it to generate income to fund its charitable efforts or donate funds to support other charitable causes. Foundations are often created by a large single primary donation from an individual or business. Examples include Bill and Melinda Gates Foundation, The Carnegie Foundation and The Ford Foundation.

Four Quadrants Of The Real Estate Capital Markets

• Private equity – Direct real estate investments acquired privately
• Public equity – REITs and other publicly traded real estate operating companies
• Private debt – Whole loan mortgages
• Public debt – Commercial mortgage-backed securities and other securitised forms of whole loan mortgage interests

Freddie Mac (FHLMC in the US)

Federal Home Loan Mortgage Corporatopn – a corporation established by the Federal Home Loan Bank to issue mortgage-backed securities.

Freehold

The legal term used to describe ownership of property held in fee simple.

Freehold Ground Rent

The (usually very low) rent paid to the owner of a freehold interest in property by the owner of a long leasehold interest in the same property.

Full Recourse Loan

A loan on which a borrower or guarantor is liable in the event of default by the borrower beyond the value of the collateral (i.e. the property), usually personally.

Full Repairing and Insuring (FRI) Lease Terms

The most common lease arrangement in England and Wales whereby the tenant is responsible for internal and external repairs and insuring the property.

Full-service Rent

An all-inclusive rental rate that includes operating expenses and real estate taxes for the first year. The tenant is generally still responsible for any increase in operating expenses over the base year amount.

Fully Diluted Shares

The number of shares of common stock that would be outstanding if all convertible securities were converted to common shares.

Future Proposed Space

Space in a proposed commercial development that is not yet under construction or where no construction start date has been set. It also may refer to the future phases of a multi-phase project not yet built.

Future Value

The market value of a property at some future date.

G

Gearing

How borrowed funds increase or decrease the equity return.

General Contractor

The prime contractor who contracts for the construction of an entire building or project, rather than just a portion of the work. The general contractor hires subcontractors, coordinates all work and is responsible for payment to subcontractors.

General Partnership

A form of partnership where all partners are deemed general partners, are jointly and severally liable for the acts and duties of the partnerships and the other partners in partnership business, without limitation of liability to each partner.

GICS

The Global Industry Classification Standard (GICS) is a standardised classification system for equities developed jointly by MSCI and S&P Dow Jones Indices. GICS® is the industry classification methodology that both companies rely on for their proprietary stock market indices, and it serves as one of the primary classification systems for equities for investors around the world.

Glide Path

The formula in the design of a target date fund that defines the asset allocation mix for the fund, based on the number of years to the target date. The glide path defines an asset allocation that becomes more conservative (more fixed-income assets and fewer equities, for example) the closer a fund gets to its target date.

Going Concern (or Going Concern Value)

An operating business (and the value of an operating business).

Going-in Capitalisation Rate

The capitalisation rate computed by dividing the projected first year’s net operating income by the value of the property.

Goodwill

Future economic benefits arising from intangible business assets. Transferable or inherent goodwill may be generated from a property-specific name and reputation, customer patronage or location and would be included in a property valuation. Personal goodwill, which is excluded from the valuation, refers to profit generated over and above market expectations, perhaps due to the particular skills of the business operator and which would not be transferred when the business is sold.

Graduated Lease

A lease, generally long-term in nature, in which rent varies depending upon future contingencies.

Grant

To bestow or transfer an interest in real property by deed or other instrument; either the fee or a lesser interest, such as an easement.

Grantee

One to whom a grant is made.

Grantor

The person making the grant.

Gross Building Area

The sum of areas at each floor level, including basements, mezzanines and penthouses included within the principal outside faces of the exterior walls and neglecting architectural setbacks or projections.

Gross Development Value (GDV)

The value of the project before any costs associated with its sale have been deducted.

Gross Internal Area (GIA)

The area of a building measured from the inside of each external wall.

Gross Investment In Real Estate (Historic Cost)

The total amount of equity and debt invested in real estate investments, including the gross purchase price, all acquisition fees and costs, plus subsequent capital improvements, less proceeds from sales and partial sales.

Gross Leasable Area (GLA)

A site calculated as the summation of all rentable areas plus all common areas of a building.The sum of areas at each floor level, including basements, mezzanines and penthouses included within the principal outside faces of the exterior walls and neglecting architectural setbacks or projections.

Gross Lease

A lease in which the tenant pays a flat sum for rent out of which the landlord must pay all expenses such as taxes, insurance, maintenance, utilities, etc.

Gross Real Estate Asset Value

The market value of the total real estate investments under management in a fund or individual accounts. It typically includes the total value of all equity positions, debt positions and joint venture ownership positions, including the amount of any mortgages or notes payable related to those assets.

Gross Real Estate Investment Value

The market value of real estate investments held in a portfolio without regard to debt, equal to the total of real estate investments as shown on a statement of assets and liabilities on a market-value basis.

Gross Rent

The rental income before any deductions have been made for management, repairs and so on.  (Compare also Net Rent)

Gross Returns

Returns generated from the operation of real estate without dilution for adviser or manager fees.

Growth Rate

Rate at which rents or capital values have increased in the past or are expected to in the future. The actual growth rate may differ from the expected rate or a growth rate implied by the relationship between initial yield and target rate of return.

Ground Rent

Rent paid to the owner for use of land, normally on which to build a building. Generally, the arrangement is that of a long-term lease (e.g. 99 years) with the lessor retaining title to the land.

Guarantor

One who makes a guaranty.

Guaranty

Agreement whereby the guarantor assures satisfaction of the debt of another or performs the obligation of another if and when the debtor fails to do so.

H

Hard Cost

The cost of constructing the actual property / physical improvements (i.e. labor and
material for construction).

Headline Rent

The rent paid before the annual equivalent of any incentives has been deducted.

Hereditament

A hereditable property.

High-rise

In the central business district, this could mean a building higher than 25 stories above ground level, but in suburban markets, it generally refers to buildings higher than seven or eight stories.

Highest and Best Use

The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible and that results in the highest value

Historical Interest Cover Ratio (Historical ICR)

Interest cover covenant included as a financial covenant and that covenant is to be tested on a historical basis. The definition sets out how Historical Interest Cover is calculated and certain adjustments that are commonly made in calculating both finance costs and passing rental received by the borrowers. If the Company fails to calculate this, the Agent may do so.

Holding Period

The period for which an investor intends to hold a property investment.

Hold Over Rent

Rent owed by a tenant to a landlord for occupying leased premises after expiration of the lease term, often expressed as a multiple of the base rent charged immediately prior to expiration of the term.

Hold-over tenant

A tenant retaining possession of the leased premises after the expiration of a lease.

Holdbacks

A portion of a loan commitment that is not funded until an additional requirement is met, such as completion of construction.

Holding Period

The length of time an investor expects to own a property from purchase to sale.

Hope Value

That part of market value over and above existing use value that could be attributed to a change of use or development potential.

HVAC

The acronym for heating, ventilating and air conditioning.

Hybrid Debt

A mortgage position with equity-like participation features in both cash flow and the appreciation of the property at the time of sale or refinance.

Hybrid REIT

A REIT that combines the investment strategies of both equity REITs and mortgage REITs.

I

Impact Investing

Impact investments are investments made with the intention to generate positive, measurable social and/or environmental impact alongside a financial return. Additionality and intentionality are key factors of impact investing. For Real Estate, social impact for example, might occur through developing or providing affordable housing, social housing , healthcare or education units when there is a lack thereof or using one of the SDGs as an impact theme. Furthermore, environmental impact can for example, be achieved by improvement in energy efficiency as a result of sustainable building investments.

Implied Cap Rate

Net operating income divided by the sum of a REIT’s equity market capitalization and its total outstanding debt.

Implied Equity Market Cap

The market value of all outstanding common stock of a company plus the value of all UPREIT partnership units as if they were converted into the REIT’s stock. It excludes convertible preferred stock, convertible debentures and warrants even though these securities have similar conversion features.

Improvements

In the context of leasing, the term typically refers to the improvements made to or inside a building but may include any permanent structure or other development, such as a street, sidewalk, utilities, etc.

Imputed Rent

An estimated rent to account for property costs when a firm uses its own capital to purchase the asset – it is usually based on the opportunity cost of the capital.

Incentive Fee

Applies to fee structures where the amount of the fee that is charged is determined by the performance of the real estate assets under management.

Income Capitalisation Value

The indication of value derived for an income-producing property by converting its anticipated benefits into property value through direct capitalisation of expected income or by discounting the annual cash flows for the holding period at a specified yield rate.

Income Property

Real estate that is owned or operated to produce revenue.

Income Return

The percentage of the total return that is generated by the income from operations of a property, fund or account.

Income Yield

Annual income as a proportion of capital value.

Indirect Costs

Development costs other than direct material and labor costs that are directly related to the construction of improvements, including administrative and office expenses, commissions, architectural, engineering and financing costs.

Indirect Property Investment

Investment in financial shares in a company or units in a trust that owns properties as opposed to direct property investment.

Individual Account Management

Accounts established for individual plan sponsors or other investors for investment in real estate, where a firm acts as an adviser in acquiring and/or managing a direct real estate portfolio.

Industrial Building

A structure used primarily for manufacturing, research and development, production, maintenance, and storage or distribution of goods or both. It can include some office space. Industrial buildings are divided into three primary classifications: manufacturing, warehouse or distribution, and flex. (The typical characteristics of the most common types of industrial buildings are shown in the Industrial Building Types Matrix.)

Inflation

The annual rate at which consumer prices increase.

Information Covenants

Undertakings given by borrowers to lenders in a loan agreement to ensure lenders have the information they need, such as financial statements, compliance certificates and a duty to notify a default.

Initial Yield

A particular type of income yield, being the initial income divided by purchase price. It is a common market measure of investment performance. The initial yield is lower than target rate because investors expect income and capital growth in the future.

Intentionality

An investor’s intention to have a positive social or environmental impact through investments is essential to impact investing. These impacts are defined as part of the strategy and investments are assessed against social or environmental impact criteria as well as financial return thresholds.

Internal Rate of Return (IRR)

A metric used in financial analysis to estimate the profitability of potential investments. The IRR is a discount rate that makes the net present value (NPV) of all cash flows equal to zero in a discounted cash flow analysis. IRR calculations rely on the same formula as NPV does.

Internal Repairing and Insuring (IRI) Lease Terms

An alternative to an FRI lease where the landlord takes responsibility for external repairs.

Interest Cover

Interest cover is the number of times net financing costs are covered by underlying profit before net financing costs and taxation.

Interest Period

The period over which the interest due to the lender under a debt instrument agreement is calculated.

Interest Rate

Annual cost of borrowing paid by the borrower to the lender on the outstanding loan balance. Typically expressed as a percentage.

Interest Reserve Account

The account the borrower may be required to maintain, principally used to establish a cash reserve which must be used for interest payment shortfalls under the loan.

Inventory

The total amount of rentable square feet of existing and any forthcoming space (whether it be a tenant vacating space or new buildings coming on the market), in a given category, for example, all warehouse space in a specified submarket. Inventory refers to all space within a certain proscribed market without regard to its availability or condition, and categories can include all types of leased space such as office, flex, retail and warehouse space.

Investment

The act of spending money or time on something with the expectation of profit in terms of an acceptable flow of income and/or appreciation in capital value.

Investment Value

Discounted value of expected net revenue.

Interest Payment Date (IPD)

Dates on which lenders receive interest payment on the debt instrument they hold. Interest payment dates are usually set at the outset and usually correlate closely to rental quarter dates.

Investment Property Databank Index (IPD Index)

A brand of real estate indices, owned by MSCI, which produce independent benchmarks of property returns. A monthly property performance index which tracks retail, office and industrial properties. The index includes data on actual property transactions from institutional investors and property companies. It produces annual and monthly figures for the total property return. The IPD UK index is the standard benchmark for investors to analyse the performance of property in the UK market.

J

Joint Venture (JV)

An investment entity formed by one or more entities to acquire or develop and manage real property and/or other assets. It is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. They are a partnership in the colloquial sense of the word but can take on any legal structure. Typically, this involves 100% funding by an investor or partner, for a profit share.

Judgment Lien

An encumbrance that arises by law when a judgment for the recovery of money attaches to the debtor’s real estate.

Junior Debt

Debt that has a lower priority for repayment than first ranking debt claims in the case of a borrower’s default. It is a type of subordinated debt.

Just Compensation

Compensation that is fair to both the owner and the public when property is taken for public use through condemnation (eminent domain).

K

Key Money

Money paid to an existing tenant who assigns a lease to a new tenant where the contract rent is below market rent (Compare also Premium).

Kiosk

A small, physically independent stand or cart often placed within the common area of a retail structure (typically a regional mall) from which specialty goods are sold.

L

Landlord

Owner of the freehold interest in a property. The term ‘landlord’ was coined to reflect the aristocratic nature of landownership in the UK. (Aslo Lessor)

Landlord’s Warrant

A warrant from a landlord to levy upon a tenant’s personal property (e.g., furniture, etc.) and to sell this property at a public sale to compel payment of the rent or the observance of some other stipulation in the lease.

Landlord’s Lien

A type of lien that can be created by contract or by operation of law. Some examples are: (1) a contractual landlord’s lien as might be found in a lease agreement; (2) a statutory landlord’s lien; and (3) landlord’s remedy of distress (or right of distraint), which in not truly a lien but has a similar effect.

Lead-in Period

An initial phase, before construction activity starts; allows for preliminary matters such as planning and the assembly of the project team to take place.

Lead Manager

The investment banking firm that handles the principal responsibilities for coordinating the new issuance of securities.

Lease

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

Leasehold

A form of tenure where one party buys the right (usually in the form of regular rental payments) to occupy a property for an agreed length of time.

Legal interest

The entitlement in law to the ownership of an interest in property.

Lessee

See Tenant

Lessor

See Landlord

Letting Fee

A payment to an agent instructed to find tenants for a vacant property, normally calculated as a percentage of the first year’s rent.

Liquidity

Refers to the time taken to transfer ownership of a property interest, from initial marketing to sale completion. Transaction costs are high for property when compared to other investments.

Loan Amortisation

The annualized rate of repayment, usually expressed in % terms, of a Loan’s outstanding principal balance.

M

Make-Whole Margin

Payment made as compensation to lender for unpaid interest arising due to early payment of outstanding loan principal, refers to the make-whole provision.

Make-Whole Provision

A provision which allows a borrower to repay a loan early, without lender consent, but subject to certain payments being made to the lender to compensate them for the loss of interest which would have otherwise been payable until the final maturity date of the loan.

Margin

The percentage rate of interest charged by lenders over the relevant basis rate reflecting the credit quality of the collateral.

Market Rent

The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and a willing lessee on
appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.

Market Value

The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length
transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.

Marriage Value

The value in excess of the sum of the values of individual interests that might be produced when they are merged.

Modified Internal Rate of Return (MIRR)

MIRR assumes that positive cash flows are reinvested at the firm’s cost of capital and that the initial outlays are financed at the firm’s financing cost. By contrast, the traditional internal rate of return (IRR) assumes the cash flows from a project are reinvested at the IRR itself. The MIRR, therefore, more accurately reflects the cost and profitability of a project.

Mortgage

A legal instrument for guaranteeing a specified property interest as security for the repayment of a loan under certain terms and conditions.

N

Net Asset Value (NAV)

The net asset value (NAV) represents the net value of an entity and is calculated as the total value of the entity’s assets minus the total value of its liabilities and obligations. (See also Net Value). According to Reporting Standards – the NAV is the fair (market) value of real estate and all other assets less total liabilities (This is the amount reported in the GAAP fair value based financial statements).

Net Debt Yield

Property’s net operating income as a percentage of the total principal loan amount.

Net Initial Yield (NIY)

The passing rent or net operating income divided by the gross property value including notional acquisition costs.

Net Present Value (NPV)

The difference between the present value of cash inflows and the present value of cash outflows over a period of time. NPV is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project. A positive net present value indicates that the projected earnings generated by a project or investment exceeds the anticipated costs. It is assumed that an investment with a positive NPV will be profitable, and an investment with a negative NPV will result in a net loss. The NPV is a discounted (present) value of a cash-flow (including purchase price).

Net Realisable Value

The amount at which an asset could be disposed of, less any direct selling costs. In valuation terms it is a market value less costs of sale; it is an exit value.

Net Value (or Net Worth)

The value of the assets in a company, an estate or an investment portfolio after accounting for all liabilities. Mutual funds use the term “net asset value” (NAV) to describe the value their portfolios net of fund liabilities and expenses, and companies use the term “book value” to describe the shareholder equity value (See also Net Asset Value),

Read more: http://www.investorwords.com/19146/net_value.html#ixzz6XBVLoluv

Net rent

The rental income after any deductions have been made for management, repairs and so on. (Compare to Gross Rent)

Nominal Interest Rate

Refers to the interest rate before taking inflation into account. Nominal can also refer to the advertised or stated interest rate on a loan, without taking into account any fees or compounding of interest. (Compare with a Real Interest Rate)

Normal Profit

Profit sufficient to keep a firm it in its current line of business.

Non-Performing Loan (NPL)

A loan which is no longer performing in line with the contractual obligations of the facility agreement.

O

Obligor

Obligor means the asset owning property company (Company) or a Borrower.

Opportunity Cost

The highest valued alternative that has to be sacrificed for the option that was chosen. Opportunity cost is the profit lost when one alternative is selected over another. For example, investors have £1,000,000 and choose to invest it in a residential investment property that will generate a return of 5%. If investors could have spent the money on a development property that would have generated a return of 10%, then the 5% difference between the two alternatives is the lost opportunity cost of this decision.

Opportunistic Real Estate (Return: from 10% / LTV: 50-80% / Risk: high)

Opportunistic properties tend to need significant rehabilitation in order to realize their potential. These properties are mostly development properties and generally have negative or zero cash flow. Opportunistic investments can include properties like vacant buildings, refurbishment, re-development, reground-up construction. Opportunistic strategies are the riskiest and target highly distressed properties that require major renovations. They also involve the development of raw land, into residential or commercial properties. There are usually significant periods of construction when no income can be generated. And often, income can only be slowly built up once that period ends. That’s why 70%-100% of the return of an opportunistic strategy comes from appreciation of the property, rather than income.

Option (or Option Fee)

A financial arrangement or payment by a developer to a landowner for the right to purchase land at some future date for development.

Outstanding Portfolio Balance

The outstanding portfolio balance is the total outstanding loan value of the entity’s portfolio at the end of the reporting period. Unpaid principal balance (UPB) is a metric used in GRESB data analysis to identify the size of the reported portfolio.

Outstanding Principal Balance

Outstanding principal balance refers to the aggregate outstanding principal amounts attributable to the loan under the Facility Agreement.

Outstanding Principal Balance

Over-Rented Property

A property where the contract rent is higher than the market rent.

Overage

Difference between the contract rent and market rent on an over-rented property. Also known as claw-back or uplift, an overage is an agreement that the buyer will pay extra, on top of the original purchase price, if and when certain events happen. For example, if the buyer increases the value of the land by obtaining planning permission.

Overage Rent

A term used to describe the additional amount of rent that a tenant needs to pay once sales reach a pre-determined target. Overage rent agreements are usually practised by retail properties, such as shopping malls.

P

Participated Loan

A loan arranged by a group of lenders, but unlike a syndicated loan, each lender does not have a direct contractual relationship with the Borrower and typically, there is no lead bank/manager.

Passing rent

The annual rental income currently receivable on a property as at the balance sheet data (which may be more or less than the ERV). Excludes rental income where a rent-free period is in operation. Passing rent is the gross rent, less any ground rent payable under head leases.

Payment in Kind (PIK) interest / Accrued Interest

Payment in Kind (PIK) interest accrues and capitalises periodically over the life of the debt instrument, thus increasing the underlying principal (i.e. compound interest). This is typical of development loans where there is no income at the asset.

Permitted Payment

Payments permitted as outlined in the loan documentation (e.g. amortisation, or repayments from sales in a portfolio) under the payment waterfall. These payments should be considered on a transaction by transaction basis.

Phased Development

A development that is completed a few units at a time.

Plant and Machinery

The equipment required to operate a business.

Pre-Let

An arrangement reached before construction is complete for a tenant to lease the premises.

Premium

Financial consideration paid by a tenant to a landlord (or by an assignee to an assignor) as a capital sum in lieu of rent. A reverse premium is paid by a landlord
to a tenant (or by an assignor to an assignee).

Prepayment

When a loan is repaid or partially repaid prior to its maturity date.

Prepayment Fees

A penalty fee which may be charged if a loan is repaid or partially repaid prior to maturity (Prepayment), designed to protect the lender against loss of income should a loan be repaid quickly. The amount or calculation will be specified in the loan agreement. The penalty is usually based on a percentage of the repaid part of the loan.

Present Value

Discounted (present) value of a cash-flow.

Price

Recorded consideration for a property.

Private Placement

A private placement is a sale of stock shares or bonds to pre-selected investors and institutions rather than on the open market. It is an alternative to an initial public offering (IPO) for a company seeking to raise capital for expansion. Investors invited to participate in private placement programs include wealthy individual investors, banks and other financial institutions, mutual funds, insurance companies, and pension funds. One advantage of a private placement is its relatively few regulatory requirements. This provides the ability of non-bank lenders to grant long-term debt finance which may not otherwise be available in the loan or bond markets.

Proactive Property Management

Implies systematically assessing property portfolios and tenant timetables, endowing with strategies to retain and increase investment performance, comprising redevelopment and refurbishment, as well as getting better tenant covenant strength and lease terms.

Professional Fees

Payments to professionals involved in the development process, such as architects, project managers and engineers.

Profit Rent

The difference between the rent received from the owner of an inferior interest and the rent paid to the owner of a superior interest. It is the rental income return to the owner of a leasehold property investment.

Property

Legal right(s) and interest(s) in land and buildings.

Property Manager

See Asset Management Company.

Property Protection Loan

A loan that is made to finance payments which are required to protect either a specific asset (Property) or the Lender’s security over that asset. This may include paying insurance policies, for example.

Public/Private Partnership (PPP)

This type of partnership involves a collaboration between a government entity and a private sector business. This may be to finance, build or operate projects, such as community spaces (buildings or outdoors) or public transport networks.

Q

Qualified Valuer (or Authorised Appraiser)

One with an appropriate academic or professional qualification and suitable experience in valuing real estate / property including land and chattels. Only an accredited, qualified valuer can provide formal valuations that can be relied up by financial institutions, lenders, private individuals, funds, property companies and the public sector. (See also Appraisal and Asset Valuation and RICS Valuer Registration and Valuation)

Quantity Surveyor(s)

Person (Company) who calculates the cost and amount of materials and workers needed for a job such as building a house or a road.

R

Real Interest Rate

The interest rate that takes inflation into account. This means it adjusts for inflation and gives the real rate of a bond or loan. To calculate the real interest rate, you first need the nominal interest rate. The calculation used to find the real interest rate is the nominal interest rate minus the actual or expected inflation rate.

Recovery Payment Proceeds

Amounts recovered from any claim an Obligor may have against a Vendor to be used in mandatory payment.

Repayment

Any payment made against an outstanding loan, either in accordance with the terms of the loan documentation or an unscheduled Prepayment.

Residential Mortgage-Backed Securities (RMBS)

An issued security which is backed by a portfolio of mortgages secured against residential properties.

Reversionary Yield

The anticipated yield to which the initial yield will rise (or fall) once the rent reaches the ERV.

RICS Valuer Registration (or RICS Registered Valuers)

An independent system of regulatory monitoring, which includes a register of valuers. Monitoring by RICS Regulation begins as soon as members sign up to Valuer Registration. RICS Valuer Registration aims to ensure the quality of valuations, raise the credibility of valuers and provide clients with a clearly identifiable designation of international standards, quality and the consistent application of ‘Red Book’ standards. RICS Registered Valuers mean that you can be confident that you are working with qualified professionals. (See also Appraisal and Asset Valuation and Qualified Valuer and Valuation)

Rolling Returns (or Rolling IRR)

Shows every inflation-adjusted compound return of a specified timeframe.

Running Yield (or Straight Yield)

The annual income on an investment divided by its current market value. Running yield is a calculation that divides the income from dividends (for stocks) or coupons (for bonds) by the market price of the security; the value is expressed as a percentage

S

Sale and Leaseback

The simultaneous sale and leasing back of a property by the same party. The purchaser of the freehold interest becomes the new landlord-investor while the seller becomes the occupying tenant.

Scarcity

A reference to the fact that at any point in time there is a finite amount of resources, in relation to the infinite amount of ‘wants’ for goods and services.

Scenario Modelling

A means of evaluating the impact of uncertainty on a valuation by modelling pre-determined combinations of input variables, usually a range of scenarios is tested.

Second Mortgage

A mortgage claim ranking subordinate to the senior mortgage, secured over the real estate asset.

Security

Assets pledged by the borrower or another party (as collateral against) amounts lent by the lender to the borrower. Following the occurrence of certain default events, the lender can use the secured assets towards recovering the amounts owed to it. Different from financial securities (stock, bonds, etc.).

Security Agent

The financial institution that empowered under the faciility agreement to take action on behalf of the lender to enforce Security in case of an event of default. Useful in loan agreements where there are, or will be, more than one lender.

Securitized Loan

A loan or portfolio of loans which are pooled and re-structured by way of risk apportionment, to provide collateral for issuance of securities.

Senior Loan

First ranking portion of a real estate loan. A loan that ranks higher (in terms of repayment and enforcement of security) than other loans to the same Borrower or borrower group.

Sensitivity Analysis

A means of evaluating the impact of uncertainty on a valuation by changing the value of an input variable by a pre-determined amount, say plus or minus 10%.

Service Charge

A payment by a tenant in addition to rent for items such as maintenance of common parts, building insurance and so on.

Specialised Trading Property

A property which is usually bought and sold as part of a going concern.

Spens Clause

A clause that allows the borrower under a facility agreement to make an early principal repayment with the provision of a specific early repayment penalty.

Sponsor

The entity that provides equity to a Borrower in a real estate finance transaction. The sponsor can also be the investment manager.

Standalone Sustainable Lending Policy

Policy or guidance document that outlines real estate lending criteria and includes sustainability-related metrics/factors.

Stepped Rents

Rent which increases in stages at predetermined points.

Step in Rights

Rights bestowed under a facility agreement to the lender to step-in and take control of borrower’s business transactions with an aim to improve business operations for future adherence to contractual debt obligations.

Subordination Agreement

The document under which any debt provided to an Obligor by a Shareholder or other entity is expressly subordinated to the Facility.

Subordinated Creditor

Any creditor of the Borrower which is a party to a Subordination Agreementin favor of the Lender.

Subordinated Creditor’s Security Agreement

An agreement that governs the ranking, or priority of payment of the junior lender and the senior lender in terms of debt waterfall including principal repayment and interest payment and during an event of default leading to enforcement or foreclosure.

Subordinated Loan

Loans subordinate to senior debt, including stretched senior (40%-60% LTV), junior (60%-70% LTV) and mezzanine financing (70%-85%+ LTV).

Sustainability scorecard

Document that outlines key sustainability attributes and risks related to the specific loan.

Syndicated Loan

A loan in which a number lenders participate, often as a result of an initial lender(s) having sold down some or all of their own participation in the loan.

Syndicated Loan Purchaser

The party that purchases an asset or group of assets from an asset originator. Asset purchaser also refers to investors in mortgage-backed securities.

T

Target Rate of Return (or Equated Yield)

Discount rate selected by an investor, often based on a risk-free base rate plus risk premium but may be derived from comparison with other investments. It is to be different from the internal rate of return which is ultimately achieved from the investment.

Tenant

The leaseholder or owner of a lease. (Also Lessee)

Tenure

Although the concept of feudal tenure has little relevance today, tenure now generally refers to the way in which a tenant holds an interest in property from a landlord or other holder of a superior interest.

“Time Is Of The Essence”

Means that performance by one party within the period specified in the contract is essential to require performance by the other party.

Transaction Document

This incorporates all transaction related documentation, and is wider than just the Facility Agreement.

Transaction Obligor

This includes entities in addition to the Obligors which are required to comply with, or whose actions are intended to be controlled by, the Facility Agreement – e.g. a Shareholder or a Subordinated Creditor.

Transfer Earnings

The opportunity cost of the land in its current use.

U

Upward-Only Rent Reviews

A clause inserted into most UK commercial leases which prevents the rent agreed at rent review from falling below the existing contract rent.

Utility

In economics this is a measure of relative satisfaction gained by consuming different combinations of goods and services.

V

Valuation

An estimate of the exchange price achievable in the market for a property. The estimate is supported by experience and knowledge of the valuer together with an  interpretation of market transactions, drawing out units of comparison from comparable properties, adjusting evidence and applying it to the subject property. Estate agents / sales persons / brokers can also offer valuations or appraisals estimated by knowledge of the local area and recent sale prices; they should only ever be used as an guide price, however they are not definitive and have no legal standing. Only RICS registered valuers (authorised appraisers) and chartered surveyors are permitted to carry out real estate valuations which satisfy the requirements of the RICS Valuation – Global Standards (known as “the Red Book”) and the IVSC International Valuation Standards (IVS).(See also Appraisal and Asset Valuation and Qualified Valuer and RICS Valuer Registration)

Value-In-Use

The present value of the future cash-flows obtainable as a result of an asset’s continued use, including those resulting from its ultimate disposal”. Unlike replacement cost, which represents the cost to a typical occupier conducting the same class of business as the actual occupier, value-in-use is a measure of the value of the asset to the specific occupying business.

Value

Estimation of price that would be achieved if the property were to be sold in the market.

Value Added Real Estate (Return: from 7-10% / LTV: 40-70% / Risk: moderate to high)

The property which “needs work”, and in the context of commercial real estate investment, this is where a value-add strategy comes in. A value-add property could be an older office or apartment building one have driven by a hundred times and hardly pay attention too because it looks outdated and maybe only partially tenanted. Perhaps there are maintenance items that have been ignored or overlooked by the current owner such as outdated roof materials, worn-out flooring, or the parking lot asphalt is broken up and pockmarked. But adding value can mean more than just fixing or upgrading the obvious aspects of the physical property. A sharp investor can add value operationally by establishing internal financial controls, where none existed before, or by restructuring the debt on a property in order to improve cash flow. Once improvements have increased the net operating income of the property, investors aim to sell value-add properties and capture natural and forced appreciation. In brief, the value-add opportunity is one in which the investor or sponsor clearly sees the path of improvement and efficiently makes the necessary changes. (Compare to Core / Core Plus / Opportunistic Real Estate)

Value To The Business

The worth of a property to a business occupier.

Viability Statement

Usually a cash-flow based assessment or valuation of developer’s profit.

Void Period

A time allowance after construction is finished to allow for tenants or investors to be found.

W

Worth

In investment terms, a specific investor’s perception of the capital sum he or she would be prepared to pay (or accept) for the stream of benefits expected to be produced by the investment. There is likely to be a range of prices at which purchasers would be willing to transact an investment. Each investor will estimate the worth of the investment taking into account tax, borrowing, risk and other criteria specific to that investor. The concept is similar to value-in-use in the context of occupiers.

X

Xystus

A garden walk, usually bordered by trees.

Y

Years’ Purchase

Multiplier used to convert income to capital value.

Yield

Capitalisation rate, divisor or ratio (usually expressed as a percentage) between the income received from an investment and its capital value. Its level depends on several factors, such as expectations of future growth and perceived risk. The yield is therefore used to describe the quality of an investment.

Z

Zoning

A standard method of measuring retail premises to calculate and compare their value. It is used by both public and private sector surveyors. Zoning as a method has been applied in the UK to the analysis of shop rents and properties for rating purposes since the 1950s. In planning terms, it is the dividing of an area by a local planning authority into zones for particular uses or activities.