Glossary

  • The manner in which commercial real estate investors gauge tenant demand. It is measured in square footage. Total absorption is the total new square footage leased by tenants. For example, if a building had 20,000 square feet of new leases in 2016, its total absorption is simply 20,000. The more relevant metric to view is net absorption which is the total new square footage leased minus the total square footage of tenants that no longer occupy their suites in a given time period. If a building had 20,000 square feet of new leases in 2016 and 5,000 square feet of tenants leaving, its positive net absorption is simply 15,000 square feet. Absorption can be measured by building or by entire markets.

  • A term used by the SEC under Rule 501 of Regulation C. In order to qualify as accredited, an investor must accomplish at least one of the following:
    • Earn an individual income of more than $200,000 per year, or a joint spousal income of more than $300,000 per year, in each of the last two years and expect to reasonably maintain the same level of income.

    • Have a net worth exceeding $1 million, either individually or jointly with his or her spouse.

    • Be a bank, insurance company, registered investment company, business development company, or small business investment company.

    • Be a general partner, executive officer, director or a related combination thereof for the issuer of a security being offered.

    • Be a business in which all the equity owners are accredited investors.

    • Be an employee benefit plan, a trust, charitable organization, partnership, or company with total assets in excess of $5 million.

  • Percentage of a building's rentable area, not counting the area occupied by elevators, equipment, hallways, lobby, restrooms.

  • A type of account on a balance sheet that is reserved for long-term capital investment projects or any other large and anticipated expense(s) that will be incurred in the future.

  • A percentage of funds returned annually after financing payments are made.

  • A building which attracts the highest quality tenants, commands the highest rents, in an excellent location and is of the highest standard construction and professional onsite management.

  • Buildings on the low end of Class A that compete for a wide range of users with rents in the average range for the area. Finishes are fair to good for the area and systems are adequate and management is good.

  • Older buildings with rents below the average for the area.

  • This is 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. Examples include: snow removal, outdoors lighting, parking lot sweeping, insurances property taxes, etc.

  • Common Equity means that investors have one-to-one (or equal) participation in each dollar invested and any potential profits or losses, i.e. no one investor or class of investors receives preference in how their capital is treated. In real estate, after all cash flows or cash proceeds of a property have been returned to debtors and preferred equity holders, the remaining value is distributed equally among Common Equity holders.

  • Crowdfunding is financing a product, idea, or venture using small amounts of money raised from the “crowd,” or members of the public. Crowdfunding is typically associated with a large number of individual investors or donors. Regulatory changes since the passage of the JOBS Act have allowed equity crowdfunding to emerge as an alternative to donation-based crowdfunding and a way for investors to earn equity in exchange for providing funding for a project.

  • The discount rate is the rate of return used in a discounted cash flow analysis to determine the present value of future cash flows.

  • Any security representing an ownership interest. As it relates to real estate, equity can be measured as the amount of capital a sponsor (property owner/developer) puts into a property. It can also be measured as the difference between the current market value of the property and the amount owed on any outstanding mortgage. Therefore, valuing a property accurately is an important factor in determining how much equity exists in an investment.

  • 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.

  • The sum of all areas on all floors of a building included within the outside faces of its exterior walls, including all vertical penetration areas, for circulation and shaft areas that connect one floor to another.

  • The period of time during which an investment is intended to be held until a sale of the underlying property.

  • IRR is the average annual return a project is expected to generate over the lifetime of the investment. It takes into account improvements to the property, capital appreciation, cash flows over multiple years, and the purchase and sale of the property, among other factors.

  • LTC is the ratio of a loan used to help finance a project compared to the total cost.

  • LTV is a risk assessment ratio that lenders perform when considering a real estate loan. Lenders divide the principal amount of the loan by the estimated value of the property.

  • The rental rate that a specific location could achieve if it were available to lease today. Like the contract rent, market rent is quoted per square foot.

  • Metropolitan statistical areas serve to group counties and cities into specific geographic areas for the purposes of a population census and the compilation of related statistical data.

  • Property that includes apartment complexes or high‐rise apartment buildings. Generally, a four-plex or more is considered commercial real estate.

  • Net absorption measures the total amount of square feet (or comparable measure) leased over a period of time, less the space that is vacated during the same period.

  • The total rental income from all of the tenants, parking revenue, and other revenues less operating expenses (taxes, insurance, management, maintenance and utilities). 

  • The amount of usable space (rentable) in a building or property.

  • Occupancy is the percentage of occupied space in a commercial real estate property or market. Occupancy can be measured in buildings and in entire markets.

  • The number of parking spaces per 1,000 square feet of leasable square footage (ex. 20 spaces / (2,000 leasable Sqft / 1,000) = 10 parking ratio.

  • Also know as an Offering Memorandum, a PPM is a legal document stating the objectives, risks and terms of an investment involved with a private placement. This includes items such as the financial statements, management biographies, detailed description of the business, etc.

  • A financial model used to predict or estimate future cash flows and total investment returns. A pro-forma attempts to take into account all the variables such as potential gross income, vacancy allowance, expenses, and future interest rates among others, to model what anticipated returns on a project may be.

  • Following the return of each member’s total investment in the Company: 20% (for example) of all subsequent distributions shall be distributed to the Manager with the remaining 80% of distributable cash allocated and distributed to the Members pro rata based on their ownership.

  • The combination of usable square feet plus a portion of the common area.

  • Senior Debt is generally secured debt that must be repaid first, before Junior Debt, Mezzanine Debt, Preferred Equity, and Common Equity, respectively. Senior Debt holders retain the right to foreclose on their property, sell it through a trustee, and recoup the fair market value of the property, up to the loan amount, including principal, interest, and fees.

  • Improvements made to the leased premises by or for a tenant. Generally, especially in new space, part of the lease negotiations will include in some detail the improvements to be made in the leased premises by the landlord.

  • A percentage used to calculate what the resale value of a property will be at the end of a given holding period. The terminal capitalization rate is determined through evaluation of a large number of market factors, and may vary depending on the perspective of the individual doing the calculating.

  • The JOBS Act is a law intended to facilitate funding of small businesses by easing regulations. It passed with bipartisan support, and was signed into law by President Obama on April 5, 2012.

    Title II of the JOBS Act went into effect on September 23, 2013— lifting a decades-old ban on the mass marketing of private securities offerings.

    Title III will be finalized in May 2016 and will allow for anyone—regardless of whether or not they’re accredited investors—to participate in equity crowdfunding. 

  • A lease in which the tenant pays, in addition to the rent, certain costs associated with a leased property, which may include property taxes, insurance premiums, repairs, utilities, and maintenances. There are also net leases, and NN leases, depending upon the degree to which the tenant is responsible for operating costs.

  • Usable Square Footage is the area contained within the walls of the tenant space. Total Usable Square Footage equals the net square footage × the circulation factor.

  • Vacancy is the percentage of unoccupied space in a commercial real estate property or market. Like occupancy, vacancy can be measured in buildings and in entire markets.