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  • Abatement
    Often and commonly referred to as free rent or early occupancy and may occur outside or in addition to the primary term of the lease.
  • Absorption rate
    The number of units of property that will be leased or sold in a market over a specific time period. Pre-leased space in buildings under construction is not included in order to avoid double counting of tenants who are in the process of moving within the market.
  • Acceleration Clause
    A loan provision that gives the lender the right to declare the entire principal amount immediately due and payable upon the violation of a certain provision (such as failure to make payments on time) as specified in the loan documents.
  • Accredited Investor
    An investor who is able to participate in a private placement of securities that is exempt from registration under Regulation D of the Securities Act of 1933. One principal purpose of the accredited investor concept is to identify persons who can bear the economic risk of investing in these unregistered securities. An Accredited investor is:
    • A natural person with income exceeding $200,000 in each of the two most recent years (or $300,000 together with a spouse in each of those years) and a reasonable expectation of reaching the same income level in the current year,
    • A natural person with a net worth, either alone or with a spouse, exceeding $1 million, excluding the person's primary residence,
    • A trust, with total assets exceeding $5 million, not formed to purchase the specific security, whose purchase is directed by a sophisticated person, OR
    • Any entity in which all of the equity owners are accredited investors.
  • Accrue
    Accumulate, increase or receive.
  • Adjusted Tax Basis
    In real estate, this is generally the net cost of a property after adjusting for tax-related items such as depreciation. This number is used when determining taxes upon the sale of a property.
  • After Tax Cash Flow (ATCF)
    The cash flow to the equity position after debt service and taxes have been paid. The ATCF is the basis for calculating the Levered IRR.
  • Amortization Period
    Repayment of a loan with periodic payments on both principal and interest calculated to pay off the loan at the end of a fixed period of time. The loan payment consists of a portion that will be applied to the accruing interest on the loan, with the remainder used to pay the principal. Over time the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified period.
  • Anchor
    A tenant that generally occupies the largest space at a given property, serving as the primary draw of customers to the property and usually receiving a lower leasing cost. Anchor tenants are considered lynchpins to the success of a major retail center development and are normally located at the extremes of the mall in order to draw customers through the center.
  • Annual Percentage Rate (APR)
    The actual cost of borrowing money, expressed in the form of an annual interest rate. It may be higher than the note rate because it represents full discloser of the interest rate, loan origination fees, loan discount points, and other credit costs paid to the lender.
  • Appraisal
    An estimate of value, made by a professional appraiser who uses a systematic approach including the analysis of market data. Appraisals may be used to determine the price of a property, the size of a loan or hazard insurance requirements.
  • As Is
    Property is provided without any guarantee as to its condition. Buyer or tenant accept property including physical defects.
  • Assignment of Rents
    A typical mortgage clause that allows the lender to receive rent from a property in the event of default during the foreclosure process.
  • Assumable Loan
    A loan that allows a new purchaser to undertake the obligation of the loan with no change in loan terms.
  • Balance
    The loan amount left over after subtracting the amount already paid from the original amount owed.
  • Balloon Loan
    Also known as a bullet loan, it is a long-term loan, often a mortgage, granted on the basis that payments of principal will be deferred until the end of the loan period and only interest will be payable during the loan period. A balloon loan will often have the advantage of very low interest payments, thus requiring very little capital outlay during the life of the loan. Since most of the repayment is deferred until the end of the payment period, the borrower has substantial flexibility to utilize the available capital during the life of the loan.
  • Base Year
    The 12 month period upon which an expense escalation of rent is based. This 12 month period is typically the first calendar year of the lease term.
  • Basis (Tax)
    The point from which gains, losses, and depreciation deductions are computed. Generally the cost, or purchase price, of an asset.
  • Basis Point
    One 100th of 1%.
  • Blind Pool
    An investment program in which funds are invested into an entity without investors knowing which properties will be purchased.
  • Bridge Loan
    A short-term loan granted to cover an intermediate stage in business. In real estate, it is a loan primarily for borrowers who have not yet sold their previous property, but must close on a purchase property. The bridge loan becomes the source of their funds for the down payment.
  • Broker (Real Estate)
    A state-licensed agent who for a fee, and within the scope of that state’s law, acts for property owners in real estate transactions.
  • Broker’s Opinion of Value (BOV)
    An estimation of property value by a real estate broker. A BOV is often intended to provide market pricing guidance to property owners without incurring the time and expense of a real estate appraisal. However, it is important to note that a BOV is not a substitute for an appraisal. A fee may or may not be charged.
  • Broker’s Price Opinion (BPO)
    See Broker’s Opinion of Value
  • Build-Out
    The 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.
  • Buy-Sell Clause
    An agreement among LLC members pursuant to which some members agree to buy the interests of others, upon some event.
  • Capital Balance
    An investor’s current cash investment balance in a particular investment.
  • Capital Call
    A request made to existing equity owners for additional money in order to fund deficits due to construction or operating costs.
  • Capital Expenditure (Cap Ex)
    Expenditures incurred to acquire property for the long term or to increase the permanent value of property. In general, money spent on improvement, alternation, or renewal is considered a capital expenditure, but money spent on repair and maintenance is not.
  • Capital Gain
    Gain on the sale of a capital asset like real property. Long term capital gains on assets held for generally at least one year often enjoy lower tax rates than ordinary income.
  • Capital Reserves (CR)
    Money set aside for unforeseen property expenses that you cannot budget for (e.g. carpet spills, accidents in garages, etc).
  • Capitalization Rate (Cap Rate)
    A ratio used to estimate the value of income-producing properties, which describes a return rate acceptable to an investor taking the risk of a capital investment. This ratio is calculated by dividing the net operating income by the sales price or value of a property expressed as a percentage, and is developed by analyzing the selling price, gross income and operating expenses of recent sales of comparable properties in a particular market place. The cap rate is one of many financial tools used by investors, lenders and appraisers to establish a reasonable purchase price for a given investment property in a specific market region.
  • Cash Flow
    The cash generated by an investment after all payments have been made that are necessary to sustain the investment; it equals the income available to the owner after the payment of all operating expenses, but before depreciation and tax.
  • Cash-On-Cash Return
    The relationship, expressed as a percentage, between cash flow (i.e. the net income receivable after debt service but before tax) and the total equity outlay on an investment. In determining such a return, the cash flow includes the effective gross income less all outgoing expenses (e.g. real estate taxes, operating expenses and interest or principal owed on financing), but no account is taken of capital appreciation, depreciation or equity build-up resulting from repayments of principal on any loan secured on the property.
  • Central Business District (CBD)
    The center of a ‘downtown’ area within a city. It is the core of an urban area where generally there is the greatest concentration of administrative and financial offices, retail establishments, entertainment facilities and hotels. In the United States, the CBD is the area that historically was the center of a town or city for business and shopping and was the area of highest land values, i.e. the area where economic activity is at its highest, creating the greatest amount of competition for property.
  • Certificate of Occupancy
    A document presented by a local government agency or building department certifying that a building and/or the leased premises (tenant’s space), has been satisfactorily inspected and is/are in a condition suitable for occupancy.
  • Class A Property
    Property with buildings of the highest quality in terms of location, design, building standards, efficiency and definitive market presence. Premier businesses compete with each other to lease this property thereby driving rents far above average for the area. Property that falls short of this standard may be classified as Class B or Class C as the particular attributes merit.
  • Closed-End Fund
    In real estate private equity funds, closed-end funds have a finite investment horizon. In some instances, the investment time-frame may be extended to accommodate market conditions.
  • Closing Costs
    Monies expended by a party in completing a real estate transaction above and beyond the purchase price, including: legal fees, taxes, mortgage application charges, interest adjustments, registration fees, appraisal fees, etc.
  • CMBS (Commercial Mortgage Backed Securities)
    Commercial mortgages that are originated, pooled and tranched for sale as bonds in the secondary market. CMBS creates liquidity for originators and investors by creating heterogeneous real estate debt securities.
  • Commercial Property
    Property designed for uses other than personal residential purposes. Commercial property includes retail shopping centers, multi-family apartment buildings, office buildings, industrial buildings, and hotels and motels.
  • Common Area Maintenance (CAM)
    The amount of additional rent charged to the tenant, in addition to the base rent, to maintain the common areas of the property shared by the tenants and from which all tenants benefit.
  • Comparables (Comps)
    Lease rates and terms, or sale 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, or sale price, for another property with similar characteristics.
  • Comparative or Competitive Market Analysis
    An estimate of the value of a property using some indicators taken from sales of comparable properties (such as price per square foot). These value estimates, similar to a broker's price opinion of value, are not appraisals and do not meet the standards of appraisal as defined by regulatory bodies.
  • Concessions
    Cash or cash equivalents expended by the landlord in the form of rental abatement, additional tenant finish allowance, or other compensation expended to influence or persuade the tenant to sign a lease.
  • Consumer Price Index (CPI)
    A measurement of inflation in relation to the change in price of a fixed market basket of goods and services purchased by a specified population during a “base” period. In real estate, this is commonly used to increase the base rental rate periodically as a means of protecting the landlord’s rental stream against inflation.
  • Contiguous Space
    Either multiple suites/spaces within the same building and on the same floor which can be combined and rented to a single tenant, or a block of space located on multiple adjoining floors in a building.
  • Conveyance
    Most commonly refers to the transfer of title to property between parties by deed. The term may also include most of the instruments by which an interest in real estate is created, mortgaged or assigned.
  • Core
    As it pertains to commercial real estate, it is typically defined as an investing strategy that focuses on acquiring the best-located, highest quality and fully stabilized assets often referred to as "trophy assets". It is typically perceived to entail the least amount of risk of the four primary commercial real estate investing philosophies (see Core-Plus, Value-Added and Opportunistic) but offers in correlation, the lowest expected total returns. Core investing also typically features a range of no leverage to low-levels of leverage.
  • Core Factor
    Represents the percentage of Net Rentable Square Feet devoted to the building’s common areas (lobbies, rest rooms, corridors, etc.)
  • Core-Plus
    The next step up from Core (see Core) in risk / return, Core-plus commercial real estate investing typically features well-located, high quality assets that are stabilized at the time of acquisition. It is generally considered a moderate risk / return strategy. A Core-plus investment strategy may entail higher levels of leverage in comparison to Core investing but at levels still considered conservative. In correlation, Core-plus is expected to deliver higher total returns than a Core strategy.
  • Cost Approach
    A method of appraising real property whereby the replacement cost of a structure is calculated using current costs of construction.
  • Covenant
    A written agreement inserted into deeds or other legal instruments stipulating performance or non-performance of certain acts or, uses or non-use of a property and/or land.
  • Debt Service
    The periodic payments required to cover the interest payments -- and usually also including a portion of the principal amount -- of a loan.
  • Debtor in Possession (DIP)
    A debtor in possession in United States bankruptcy law is a person or corporation who has filed a bankruptcy petition but remains in possession of property upon which a creditor has a lien or equivalent security interest.
  • Deed
    A written document that conveys title to real property when properly signed and delivered. There are different types of deeds that provide different levels of assurance about the extent of the title being conveyed; some forms of deed guarantee that all types of ownership are being conveyed, while others make only limited promises about the ownership rights.
  • Deed in Lieu of Foreclosure
    A deed instrument in which a mortgagor (i.e. borrower) conveys all interest in a real property to the mortgagee (i.e. lender) to satisfy a loan that is in default and subject to foreclosure proceedings. A deed in lieu is sometimes referred to as a form of “friendly foreclosure” in which the borrower and lender enter into such an agreement voluntarily and in good faith. A deed in lieu is designed to provide immediate relief of indebtedness to the borrower (with less damage to the borrower’s credit worthiness), while reducing time and costs associate with asset repossession to the lender.
  • Default
    The general failure to perform a legal or contractual duty or to discharge an obligation when due. (i.e. missing a mortgage payment, missing rent payments, failing to perform any terms in a legal contract).
  • Deficiency
    In mortgage finance, a shortfall of funds recovered through the sale of property securing a foreclosed loan compared to the amount of debt, accrued interest, foreclosure expenses, and damages incurred by the lender.
  • Delinquent
    Past due; having an unpaid amount after the due date and any grace period has passed.
  • Demographic
    Pertaining to the characteristics of the population, such as race, sex, age, household size, population growth, and density.
  • 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 deteriorations or obsolescence.
  • Depreciation Recapture
    To the extent that an investor's tax basis in an asset has been adjusted (often because of depreciation), the investor may be required to pay additional tax -- depreciation recapture -- on the amount of the adjustment. For real estate assets, the rate of tax will depend on whether or not an accelerated depreciation method had been used or whether offsetting capital expenditures have been made.
  • Discount Points
    A percentage of the loan amount that a lender charges a borrower for making a loan. [1 point equals 1% of the mortgage amount.]
  • Discounted Cash Flow
    A method of investment analysis in which anticipated future cash income from an investment is estimated and converted into a rate of return (generally the internal rate of return, or IRR) based on the time value of money. Alternatively, when a rate of return is specified, a net present value of an investment can be estimated.
  • Discounted Payoff (DPO)
    The payoff of a loan in which the lender releases its lien for an amount less than the unpaid principal balance of the loan.
  • Distributions
    Quarterly payments to investors made on a pro-rata basis and represent cash-on-cash returns; preferred distribution at SKB is approximately 10%.
  • Dollar Stop
    An agreed dollar amount of taxes and operating expense (expressed for the building as a whole or on a square foot basis) over which the tenant will pay its prorated share of increases.
  • Due Diligence
    An investigation or audit of a potential acquisition that serves to confirm or disaffirm known material facts in regards to a transaction. In commercial real estate transactions, due diligence is typically conducted during the “Due Diligence Period” (see Due Diligence Period).
  • Due Diligence Period
    Duration of time, typically 30 days, that allows a buyer to investigate a potential acquisition. Under normal circumstances, the buyer is granted the authority to cancel the transaction for any reason during this time period without forfeiture of its Earnest Money Deposit (see Earnest Money Deposit).
  • Earnest Money Deposit
    A deposit, usually made into an escrow account (see Escrow), that demonstrates a buyer’s good faith and seriousness of intent to a seller in a real estate transaction. An earnest money deposit is usually refundable during the due diligence period (see Due Diligence Period). Upon expiration of the due diligence period, an earnest money deposit usually “goes hard” (see Hard Earnest Money) if a buyer elects to proceed with the transaction.
  • Easement
    A right granted to another person or entity to trespass upon land that the person or entity does not own. Easements are often granted to utility companies or neighboring land-locked properties. Monetary compensation may or not be given in exchange for an easement.
  • Economic Rent (Market Rent)
    The market rental value of a property at a given point in time, even though the actual rent may be different.
  • Effective Gross Revenue (ERG)
    Total income generated by a property, less operating expenses, when it is fully leased and after making allowance for vacancies and defaulting tenants.
  • Efficiency Ratio
    The ratio of usable area to the rentable area of a building or a floor in a building.
  • Eminent Domain
    The power to take private property for public use by a state.
  • Encumbrance
    Any right to, or interest in, real property held by someone other than the owner, but which will not prevent the transfer of fee title (i.e. a claim, lien, charge or liability attached to and binding real property).
  • Equity
    The amount of an investor’s own funds paid over to acquire a property. It can also be the difference between the present market value of a property and the amount of debt or mortgage loans outstanding against the net worth of an owner’s interest in a property.
  • Escheat
    A common law doctrine which transfers the property of a person who dies without heirs to the state.
  • Escrow
    The deposit of deed, bond, monies, contract or other written agreements with a third person to be delivered or used only upon performance or fulfillment of set conditions, as established in a written agreement between two parties.
  • Fee Simple Estate
    An estate in land that is limited only by the governmental powers of taxation, police powers, eminent domain, and escheat.
  • Foreclosure
    The process by which a lender gains possession of mortgaged land after the borrower has defaulted on a loan. Most states require that some notice be given to a borrower after his missing a required payment before the foreclosure process can begin; during this initial period the owner still has a right to redeem the property, but failing any such redemption, the foreclosure process begins. Statutory foreclosure (such as where deeds of trust are used) can be effected without recourse to courts, although laws still regulate the process. Judicial foreclosure submits the process to court supervision.
  • Gateway City
    A city that serves as the entry point to a country by acting as a primary arrival and departure point by airport or seaport. Within the US commercial real estate industry, it is commonly applied to cities such as New York, Los Angeles, San Francisco and Seattle and cited as a differentiator in estimating future demand for real estate.
  • General Partner
    In real estate private equity funds, general partners are the minority equity investor. The general partner is the active manager that solicits limited partners, acquires, manages, and disposes of real estate investments. General partners have direct liability from investments in the fund.
  • Go-Dark
    The condition that results from a tenant’s closing its business during its lease term. “Going Dark” typically assumes that the tenant continues to maintain its lease payments. Some leases include language that allows for this possibility while other leases provide means for a landlord to void a lease and repossess the premises.
  • Green Building
    A building that is built to minimize damage to the environment and reduce utility costs.
  • Gross Lease
    A rental agreement that stipulates a lessee pays only a fixed rent throughout the term of the lease while the lessor pays all of the building operating expenses and repairs, property taxes, insurance premiums, etc. However, the tenant is responsible for any utilities and other expenses directly relating to the occupied space.
  • Ground Lease
    A lease of raw land; although the lease may be secured by a building or buildings erected by the lessee at a later date. The lessee retains the right to use and occupy any of the buildings erected on the land for the term of the lease. At the end of the lease, usually granted for periods in excess of 20 years, the land together with the improvements reverts to the lessor.
  • Guaranty
    An assurance provided by one party that another party will perform under a contract. It can be limited or include personal liability.
  • Hard Earnest Money
    An earnest money deposit (see Earnest Money Deposit) that is no longer refundable to the buyer in a real estate transaction following the expiration of the due diligence period (see Due Diligence Period). Should the buyer fail to close a transaction with hard earnest money, the earnest money is forfeited by the buyer and paid to the seller as both a penalty to the buyer for its failure to perform and as a means of compensation to the seller for its opportunity cost associated with the failed transaction.
  • Hard Money
    Cash paid to acquire additional equity in an investment, especially when used to repay existing debt or required to offset an increase in the value of the property.
  • Hedge (Inflation)
    An investment that tends to maintain its value over time, even when adjusted for inflation.
  • Hold Period
    The time span of ownership of investment real estate.
  • Holdback (Reserve)
    Money not paid until certain events have occurred, such as a retained amount on a loan involving construction work.
  • HVAC
    Heating, ventilation and air conditioning unit (large capital cost due to high maintenance fees; considered a capital expenditure)
  • Illiquid Asset
    An asset that is not readily convertible to cash such as real estate.
  • Impact Fee
    A fee that is charged by a municipality on a new or proposed development that is intended to offset costs associated with increased use a city’s infrastructure.
  • Improvements
    Additions to raw land that tend to increase the property's value; similar to developments. Improvements include not only buildings, but also public enhancements such as infrastructure, i.e. roads and sewers.
  • In-Fill Development
    Improvements on land adjacent to and between existing development. A way to increase population density and minimize urban sprawl.
  • Industrial Property
    Industrial properties include manufacturing facilities, warehouses, distribution centers, and research & development space. Special purpose and single tenant buildings tend to be more difficult to re-lease than multi-tenant distribution buildings originally built on “spec.”
  • Inflation
    A loss in the purchasing power of money; an increase in the general price level. Generally measured by the Consumer Price Index (CPI), a statistic published by the U.S. Bureau of Labor Statistics.
  • Infrastructure Improvements
    The installation of roads, sewers, water mains, electricity lines and sidewalks in residential or commercial properties, characterized as “off-site” improvements. Once present, all the “on-site” structures (house, building, etc.) can begin construction.
  • Initial Loan Fee (Lender Loan Fee)
    Fee that the lender charges for granting a loan request, usually 1% of loan amount.
  • Institutional Lender
    Financial institutions that invest in loans either directly, typically banks and savings & loans, or insurance companies, through mortgage brokers.
  • Interest-Only Loan
    A loan in which the interest is payable at regular intervals until the loans maturity, when the full loan balance becomes due. Does not require amortization.
  • Internal Rate of Return (IRR)
    The compounded annual rate of return on the investment over its life, from and after the closing date, applied to the principal amount of the closing contributions plus any subsequent contributions. It is used to compare alternative investments as investors decide if the return is sufficient to warrant parting with money or if it is worth borrowing money at a given interest to make an investment. Simply put, the IRR is a measure of the inducement to invest because it measures the return of capital, i.e. the derived return.
  • Joint Tenants With Right of Survivorship (JTRS)
    Ownership of property by two or more people in which the survivors automatically gain ownership of a decedent’s interest without any distinct or separate interest in the land.
  • Joint Venture
    An agreement between 2 or more parties that invest in a single business or property, typically as a limited liability company or limited partnership.
  • Judicial Foreclosure (VS. Statutory Foreclosure)
    A type of foreclosure where the claim is processed by the state court system; the lender sues on the debt, obtains judgment, and executes the judgment against the property of the mortgagor (borrower). This process is to be contrasted with statutory foreclosure, used in states that allow deeds of trust and where the foreclosure process is handled outside of the court system.
  • Leased Fee Estate
    The estate in land created when the fee simple owner transfers the right of exclusive use to a tenant via a lease.
  • Leasehold Estate
    The estate in land of the tenant with the right of exclusive use granted via a lease.
  • Leasing and Capital Costs
    The costs incurred by a landlord while supervising a property, including tenant improvements (TI), leasing commissions (LC), capital reserve and capital expenses, marketing, legal fees, etc.
  • Letter of Intent (LOI)
    The expression of a desire to enter into a contract without actually doing so.
  • Leverage
    The use of borrowed Funds to “leverage” the amount of equity used to acquire an asset. This translates to a loan-to-value (“LTV”). A LTV ratio of 75/25 would be 75% debt and 25% equity.
  • Levered IRR
    The internal rate of return to the equity position from a real estate asset utilizing debt financing.
  • Lien
    A charge against property making it security for the payment of a debt, judgment, mortgage or taxes; it is a type of encumbrance.
  • Limited Liability
    The restriction of one's potential losses to the amount invested; the absence of personal liability.
  • Limited Liability Company (LLC)
    A type of investment structure where shareholders cannot lose more than the amount they invested in the organization. Therefore, shareholders are not personally responsible for the debts and obligations of the company in the event that those debts are not fulfilled. For example, every time SKB completes a new acquisition, the property is purchased via an LLC formed by the investors (but managed by SKB) in order to legally protect one another from losing more money than the amount they personally invested in the property should default occur.
  • Limited Partner
    In real estate private equity funds, limited partners are the majority equity investor. Limited Partners are passive and shielded from any liability incurred in the investment fund.
  • Liquidity
    The ease with which assets may be converted into cash.
  • Opportunistic
    The next step up from Value-added and furthest plotted point in the risk / return line, Opportunistic investing is generally considered a high risk / return strategy. Opportunistic investing typically involves a high degree of asset enhancement that may include entitlement changes, development, redevelopment, 100% lease ups, substantial capital investment, repositioning and, in general, correcting high levels of distress. This strategy is often deployed in a tactical manner at specific points of a real estate cycle and is typically paired with high levels of leverage.
  • Probable Maximum Loss (PML)
    The maximum loss that an insurer would be expected to incur on a policy. Probable maximum loss (PML) is most often associated with insurance policies on property, such as fire insurance. The probable maximum loss represents the worst-case scenario for an insurer.
  • RUBS (Ratio Utility Billing System)
    A Ratio Utility Billing System allocates the property’s actual utility bill to the residents based on an occupant factor, square footage factor, or a combination of both.
  • Value-Added
    The next step up from Core-plus (see Core-plus) in risk / return, Value-added is generally considered a medium-to-high risk / return strategy. This strategy will often involve acquiring a property, improving it and then selling it an opportune time for a gain. Methods deployed to improve a property or "add value" may include correcting operational deficiencies, leasing vacancies, implementing physical enhancements and curing capital constraints.