Commercial Real Estate Glossary of Terms

Basic Rent – This is the rent agreed to through negotiation and does not include adjustments and additions.

BCTF (Before Tax Cash Flow) cash on cash return – subtract annual mortgage from NOI 

Break-even point – This is the point where the effective gross income equals the cost of all operating expenses and debt service payments.

Basis Points (BPs) – Values equal to one-hundredth of one percentage point. For example, 100 basis points = 1 percentage point.

Bay Depth – The distance between columns. (Synonyms: clear span, column spacing)

Bay Width – The distance from one side of the bay to the other.

Big Box – A freestanding structure occupied by a dominant retailer such as Home Depot. 

Biotech Space – Highly specialized laboratory or research and development space. The space is uniquely configured and is typically developed to the needs of the biotech tenant. It may require significant retrofit should the tenant vacate the space. The space is often characterized by robust mechanical, electrical, and plumbing systems, as well as by sophisticated ventilation systems to accommodate the highly specialized and complex activities that occur inside and that involve the handling of chemicals, drugs, and biological matter.

Blanket mortgage – This is a single mortgage covering more than one property, such as a mortgage covering all the lots of a builder in one subdivision.

Blend and Extend – A blend and extend lease is a type of renewal that allows tenants to blend their existing lease into a new and longer lease. If a tenant is paying rent that is above current market rents, this arrangement will lower the current rental rate. The tenant benefits by an immediate reduction in the rental rate, and the landlord benefits by securing a tenant for a longer term. Conversely, if rents are rising quickly and lease expiration is approaching a tenant may renew early and extend to lock in lower rates.

Brownfield – Abandoned, idled, or underused land or facilities where expansion or redevelopment is complicated by real or perceived environmental contamination.

Build to suit – The construction of a building or property that suits the needs of the occupant

Capital Expenses or Cap Ex – Improvements (as opposed to repairs) to a fixed asset that will increase the value or useful life of that asset. A capital expenditure is typically amortized or depreciated over the useful life of the asset, as opposed to a repair, which is expensed in the year incurred.

Capital improvements – As above with Cap Ex these are additions to the property or improvements that enhance or extend the useful life of the property.

Capital Cost Allowance – deduction on depreciable assets 

Capital Gain = NSP-Cost

Capitalization Rate or Cap Rate – This is the anticipated stabilized rate of return from an investment. Also known as the cap rate. The cap rate is typically calculated using the NOI generated in the first year of ownership so investors can normalize and compare potential returns among competing investment properties.

Cash flow analysis – A projection of the buyer’s estimated cash flow over the holding period.

Ceiling Height – Distance from the floor to the inside overhead upper surface of the room. This measure will be higher than any hanging objects, beams, joists, or trusses, unless there is a suspended ceiling.

Class A Building – A classification used to describe an office building with rents in the top 30 to 40 percent of the marketplace. Class A buildings are well-located in major employment centers and typically have good transit, vehicular and pedestrian access. Additionally, they are located adjacent to or in proximity to a high number of retail establishments and business-oriented or fast casual restaurants. Building services are characterized by above-average upkeep and management.

Class B Building – A classification used to describe an office building with rents that are based between those of Class A and Class C buildings. Class B buildings are in good to fair locations in major employment centers and have good to fair transit, vehicular and pedestrian access. They are located adjacent to or in proximity to a moderate number of retail establishments and business-oriented or fast casual restaurants. Building services are characterized by average upkeep and management.

Class C Building – A classification used to describe an office building with rents in the bottom 10 to 20 percent of the marketplace. Class C buildings are in less-desirable locations relative to the needs of major tenant sectors in the marketplace. They can be older, neglected buildings in good locations or moderate-level buildings in poor locations, so transit, vehicular and pedestrian access may vary. Typically, fewer amenities and restaurants are found in or near these buildings, and they are usually of moderate to low quality. Building services are characterized by below-average upkeep and management.

Clear Height – Distance from the floor to the lowest-hanging ceiling member or hanging objects, beams, joists, or truss work descending into a substantial portion of the industrial work area. This is the most important measure of the interior height of an industrial building because it defines the minimum height of usable space within the structure. (Synonyms: clear headway, clearance).

Clear Span – An open area with no obstructions.

Clear Title – Any property that is free of all competing claims, mortgages, liens, and encumbrances.

Comparables – A term used to refer to area rents or competitive rental properties or area sales that have sold, implying that “rent comps” and “sales comps” are comparable in size, location, condition, amenities, etc., to the subject property.

Contingent offer – This is an offer to purchase property subject to certain conditions, including the buyer’s approval of income and expense statements, title commitment, physical condition of the property, loan commitment, etc. – being met. The specific amount of time allowed to clear these provisions is called the inspection or contingency period.

Cost – original purchase price

Co-tenancy – A clause in a retail tenant’s lease that provides remedies to a tenant if another tenant, typically an anchor or major tenant, ceases its operations at the property. 

Column Spacing – The distance between posts or vertical supporting beams in a building.

Commercial Mortgage-backed Securities (CMBS) – CMBS are a type of bond that is commonly issued in U.S. securities markets and is backed by the cash flow from a pool of mortgages on commercial properties. The CMBS are often arranged into groups or “tranches” according to geography, property type or underlying credit rating.

Common Area – The generally accessible areas found on each floor of an office building such as washrooms, janitorial closets, electrical rooms, telephone rooms, mechanical rooms, elevator lobbies and public corridors that are available for use by all tenants on that floor. It does not include major vertical penetrations such as elevator shafts, stairways, equipment runs, etc., (identified as a percentage of rentable area).

Community Center or Community Shopping Center – A retail property with a wide range of apparel and general merchandise stores, as well as discount retailers or department stores.

Competitive Inventory – Single-tenant and multi-tenant buildings typically consist of 10,000 square feet or more that are owned by one party and are made available for lease to another party. Owner-occupied and government-owned buildings are typically excluded from the competitive inventory. Note: It is important to note that data providers each have their own set of buildings that make up the competitive inventory in their foundational data set. Some include buildings larger than 20,000 square feet, while others include buildings as small as 5,000 square feet. Those modest differences in the competitive set can cause variations in metrics such as vacancy and absorption reported by each shop.

Competitive Set – A subset of total inventory that enables one to isolate and compare buildings based on similar characteristics rather than simply by location. For example, a broker preparing to show available space to a tenant may identify five properties to be toured based on location, square footage available, class, asking rent, parking ratio, etc. An investment sales or finance broker may generate a competitive set of buildings according to access to transit, year built, percentage leased, etc., to help estimate the value of an asset to be bought, sold, or refinanced.

Completion – (See Delivered)

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.

Concessions – To secure a tenant when vacancy is high in a market or submarket, a landlord may need to grant concessions in the lease. Those concessions most often take the form of free rent but may also include lease buyouts, moving allowances and above-market tenant improvement allowances.

Contiguous Block(s) – Multiple suites or spaces on either the same floor or the adjoining floor(s) in the same building.

Contract Rent – The rental rates stipulated in an executed lease agreement. Typically, the contract rate is based on the first-year rate as opposed to the average rate over the term of the lease. (Synonym: base rate)

Conversion – A building that is changed from one use to another (i.e., an office building that is converted to a multifamily building). Space being converted is removed from current inventory and included in the under-construction category for the planned future use (i.e., an office building being converted to an apartment building will be removed from office inventory and included under apartment space, or number of units, under construction). (Also see adaptive reuse)

Core Area – The common area plus vertical penetrations in an office building measured in square feet. Core area is typically expressed as a percentage of net rentable area. This factor, which ranges from 5 to 20 percent for typical office buildings, can be computed for an entire building or a single floor of a building.

Core Investment – An investment in a high-quality real estate asset that is 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.

Coworking Space – Workspace offered for lease for short- to long-term periods in a communal setting. Space for office, artistic or manufacturing use can be leased by the day, month, year or even hour. The physical space leased can range from a traditional dedicated private office with a door to an unassigned seat on a bench along a communal table. Coworking spaces go beyond just providing a physical work environment. They are typically operated by entities that offer business-related lectures, social events, and a sense of community for their entrepreneurial tenants, thus helping them grow their businesses.

Creative Office Space – Previously industrial space with high ceilings and exposed air ducts. The space is often made of brick and timber and has been converted to office or studio space that often caters to technology, advertising, media, and entertainment tenants (TAME).

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 honor 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 Dock – Loading docks on opposite sides of a relatively shallow distribution facility that allow for quick loading, sorting, or unloading from one vehicle to another (i.e., materials from one truck at a loading dock are unloaded, sorted, and reloaded onto one or more trucks).

Cubic Volume – In many industrial facilities, the cubic volume of the building must be calculated so a user can determine the size and type of racking and sorting equipment that can be accommodated.

Debt Coverage Ratio – The debt coverage ratio is the ratio of the net operating income to the mortgage payment. If net operating income is projected to change over time, the investor typically reports the first year’s net operating income.

Delivered – A building that has completed construction (i.e. obtained its certificate of occupancy). With a COO, the property will be considered delivered whether tenants have occupied the space. (Synonyms: completion; new supply)

Density – This is the amount of total square feet buildable on a set land. For example, high density properties feature more floors.

Direct New Space – Space that is offered for lease directly by the building owner or landlord. If space is offered for lease by a building tenant, it is not direct space but rather is sublet space.

Direct Vacancy Rate – The total amount of physically vacant space divided by the total amount of existing inventory, expressed as a percentage. Space that is under construction (and, therefore, is vacant) is not included in vacancy calculations.

Discount Rate – Interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.

Distribution Building – A type of warehouse facility designed to accommodate efficient movement of goods. 

Dock-high Door – A loading dock door that is not at ground level but rather is elevated to 4 feet to be even with the standard tractor-trailer height for loading or unloading goods without a change in elevation. Some doors, called “semidock” or “half dock,” are constructed at a 2-foot height to accommodate smaller or lower delivery trucks.

Door-to-square-foot Ratio – The ratio of the total number of loading docks and drive-in doors to the building’s total square feet.

Drive-in Door – A door through which trucks, forklifts, and other machinery or vehicles can enter and exit without a change in elevation.

E-commerce – Electronic commerce is the buying and selling of products or services mostly through the Internet. Typically, transactions are carried out via desktop and laptop computers as well as on mobile devices such as smartphones and smart tablets.

Effective Gross Income also known as EGI is calculated by adding the PGI + other income minus credit costs 

Effective Rent – Expressed in dollars per square foot either per year or per month depending on market standards, it is a measurement of the value of the lease when all the concessions plus escalations are included. Effective rent calculations may vary according to local market practices; for example, in some markets, broker commissions are included.

Effective Rent Calculation – Effective Rent = (total rent – free rent – cash allowances) / lease term / rentable square foot Total Rent = rent paid during the term of the lease including escalations Note: Cash allowances can include free rent, moving allowances and other cash considerations.

Encumbered Space – A block of space offered for lease by a landlord to which another tenant has some right to lease or occupy at some future date.

Encroachment – A building, part of a building or obstruction which intrudes on another property.

Encumbrance – A claim, lien, charge, or other liability attached to real property which may diminish its value.

Energy Star® – Also referred to as an “EPA rating” or an “Energy Star rating,” the rating is a standardized national benchmark that helps architects and building owners assess energy use relative to similar buildings in the program. An Energy Star-qualified building means the building meets EPA criteria for energy efficiency and displays the Energy Star building label.

Escalation Clause – A clause in a lease providing for an increase in rent at a future time. This could be a fixed or pre-determined rate increase, or a cost-of-living increase that ties the rent to a cost-of-living index, or direct expense – the rent is adjusted according to changes in the expenses of the property such as a tax increase.

Experiential Retail – The notion that people buy goods online but pursue experiences at brick and- mortar locations (i.e., do yoga, eat at restaurants, visit flagship stores for experience and entertainment, etc.).

Exurban – An emerging residential area beyond built-up suburbs and edge cities.

First right of refusal – An option in a lease provided to a tenant in a lease contract providing first right to occupy space or match an incoming offer on adjacent space that may be required for the tenant’s future expansion.

Flex Facility – As its name suggests, an industrial building designed to be used in a variety of ways. It is usually located in an industrial park setting. Specialized flex buildings can include service centers, showrooms, offices, warehouses and more. 

Floor Area Ratio – FAR is the relationship between the total square footage of a building and the total square footage of the parcel on which the building is located. It is typically calculated by dividing the total square footage of the building by the land area in square feet. For example, if a 20,000-square-foot building is built on a 10,000-square-foot lot, the FAR is 2.0.

Floor space ratio – Also known as FSR, and like FAR above, FSR is the maximum floor space of a building relative to its land area.

Floor Plate – The gross square footage of each floor in a multistory building. Individual floor plate sizes may vary according to the design of a building.

Freestanding – A stand-alone retail structure that is not part of a complex (i.e., bank, bowling alley, Walmart, etc.). 

Fulfillment Center – An industrial property type that enables goods to be efficiently moved or transported from a warehouse directly to a consumer. 

Full-Service Lease – A legally binding contract in which a landlord receives stipulated rent from a tenant and is obligated to pay all or most of the property’s operating expenses and real estate taxes. 

Functional Obsolescence – A descriptive term used to characterize a building that cannot be improved to meet current market standards or tastes without a complete replacement of buildings systems and finishes.

Free and clear – When there are no liens or loans against real property.

Go Dark – A clause in a retail tenant’s lease that allows a tenant to cease operations at a property if a defined event, such as the departure of an anchor tenant, should occur.

Government Office Building – A building that is owned (and typically occupied) by public sector entities.

Graduated lease – A lease that details for changes in the rental rate, usually based on periodic appraisal or time.

Green Globes® – Founded in Canada in 1996, Green Globes is a green building guidance and assessment program that offers a way to advance the overall environmental performance and sustainability of commercial buildings. After achieving a minimum of 350 of the total number of 1,000 points, new and existing commercial buildings can be certified for their environmental achievements and sustainability by pursuing a Green Globes certificate that assigns a rating of one to four globes.

Gross Absorption – The total amount of space occupied over a given period, without subtracting the amount of space vacated. (Synonym: leasing activity)

Gross Building Area (GBA) – The total interior floor area of a building, usually measured from the innermost edge of the outside walls.

Gross Leasable Area (GLA) – A site calculated as the summation of all rentable areas plus all common areas of a building.

Gross Lease – A lease where the tenant pays all or part of the expenses of the leased property, such as taxes, insurance, maintenance, utilities, etc.

Gross Rent Multiplier – Sales price or value divided by annual effective gross income. For example, if sale price is $325,000 and the effective gross annual income is $50,000 the G.R.M. is 6.5 ($325,000 /$50,000).

Gross Up Area – It is the space leased but not occupied by the tenant, usually for areas as washrooms, lobby area and utility centres.

Ground Lease – A lease agreement (contract) whereby the landowner (lessor) agrees to lease a parcel of land for a set period to a third party (lessee). Depending on the agreement, the lessor can stipulate what the lessee can or cannot do with the property or build on the property. The lease term is typically 20 years or more, but many extend to 99 years. Upon expiration of the lease agreement, the lessor typically gains control and ownership of whatever is constructed on the land, unless the lease is renewed, or an exception is created in the lease.

High Cube – A relative term that refers to industrial buildings with an abundance of clear height or vertical cubic space. 

In-line Store – A retail store placed adjacent to neighboring retailers so that the fronts of the stores are in a straight line and behind what is considered the lease line. Tenants operating in the common area are not considered in-line vendors.

Incubator – An economic development tool created to support new businesses. Typically, lab or office space or both provided for free or at a deep discount in buildings owned or leased by municipalities. Business assistance and financing opportunities may be provided as start-ups gain momentum.

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. 

Infill – Infill is the development of one or more buildings on underutilized land situated between existing buildings. Infill development is typically done in dense environments where land is scarce. The slightly broader term “land-recycling” is sometimes used.

Innovation Center or District – Geographic areas with concentrations of innovative firms and entrepreneurial activity that focus on strengthening and growing new businesses and commercializing their products or services or both.

Interest only mortgage – A non-amortizing loan where the lender receives only interest during the term of the loan and recovers the principal in a lump sum at the end of the term.

Internal Rate of Return (IRR) – For income properties, it is the interest or discount rate needed to discount the sum of future net cash flows, including amortization and payments of loans and depreciation of the real property, to an amount equal to the initial equity of the property. For development projects, it is the interest or discount rate needed to convert (or discount or reduce) the sum of the development expenditures and incomes to equal zero.

Joint Tenancy – (or more formally ‘joint tenants with a right of survivorship’) is the most common way for legally married spouses to hold ownership of their house in Ontario. If one joint tenant dies, they cease to be an owner, and the remaining joint tenant continues as the owner.

Joint Venture – JVs occur when two or more companies join to collaborate on a particular project. Through their collaboration, the companies share resources, profits, losses, and expenses. The joint venture is a legal entity separate from the companies’ other business interests.

Justified Investment Price – The justified price to earnings ratio is the price to earnings ratio that is “justified” by using the Gordon Growth Model. This version of the popular P/E ratio uses a variety of underlying fundamental factors such as cost of equity and growth rate

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.

Landlord – Company or individual who rents property to another.

Lease – A contract where one party (the landlord) agrees to allow another party (tenant) the exclusive, common and/or joint right(s) to use a property for a specific period.

Lease buyout – When a landlord offers to take over the current lease of a tenant.

Leaseback – A transaction where an investor purchases property and then leases it back to the seller.

Leasehold – A leasehold is an ownership structure in which a temporary right to use land has been granted by the landowner to another party. (See ground lease.) Although the tenants do not own the land, they are able to improve the land and operate it as stipulated in the ground lease for the term of the lease.

Leasing Activity – Leasing activity is a term that refers to the number of leases signed, or square footage committed to over a specified period without regard to occupancy. Typically, leases are executed many months before a tenant occupies the space. This arrangement means that a lease can be executed in each quarter, but the space commitment will not show up in the absorption figures until the space is occupied at some point in the future. Leasing activity includes direct leases, subleases, and expansions of existing leases. Leasing activity also includes any preleasing activity in buildings that are under construction, are planned or are under renovation. (Synonym: gross absorption)

LEED® or Leadership in Energy and Environmental Design – LEED® or Leadership in Energy and Environmental Design – LEED is a third-party certificate program under the U.S. Green Building Council (USGBC) and is recognized in Canada. It is an internationally accepted benchmark for the design, construction, and operation of high-performance sustainable buildings. Certificate levels are as follows: Certified, Silver, Gold, or Platinum. The levels are based on points obtained in six areas: sustainable sites, water efficiency, energy and atmosphere, material and resources, indoor environmental quality, and innovation in design.

Less than Truckload or Less than Load (LTL) Shipping – LTL is the transportation of lightweight freight or smaller groupings of freight. LTL shipments typically weigh between 151 and 20,000 lbs. LTL carriers collect freight from various shippers and consolidate that freight onto enclosed trailers for line haul (the movement of cargo between two major cities or ports) to the delivering terminal or to a hub terminal.

Lessee – The tenant, or the party a property is rented to.

Lessor – The landlord, or the one who rents the property to another.

Letter of intent – A formal method of stating there is interest in a property, but it is not an offer and creates no obligation.

Leveler – Steel plates that are moved by auto-hydraulic lifts to make a loading dock level with a truck bed. A fully loaded truck may sit 4 to 6 inches lower than a standard 48-inch-high dock. The device is used to account for the difference so a forklift can be driven into and out of a truck. A building equipped with multiple loading docks may not have a leveler for each dock.

Lien – A hold or claim which one person has upon property of another as security for a debt, charge, tax, or judgment.

Lifestyle Center – A type of retail property in an urban-like or Main Street setting with pedestrian circulation in the core and with vehicular circulation along the perimeter. Tenants are typically upscale, national-chain specialty stores, restaurants, and theaters. 

Load Factor or Core Factor – The load factor is calculated by dividing the rentable building area (RBA) by the usable area. This factor can then be applied to the usable area to convert it to RBA for comparison. In markets where space is leased on the basis of the usable area, if the load factor is 15 percent, then the usable area can be multiplied by 1.15, resulting in the RBA. (Synonym: add-on factor)

Loading Dock – An elevated platform at the shipping or delivery door of a building; it is usually situated at the same height as the floor of a shipping container on a truck or railroad car to facilitate loading and unloading. Loading docks can be exterior ramps that protrude from a building and that are covered with a canopy or some element to protect the loading area from the elements. Otherwise, they can be flush with the exterior of the building and accessed through a sliding door that is adjacent to the interior of the building.

Loan to Value Ratio (LTV) – The ratio between a mortgage loan and the value of the property pledged as security, usually expressed as a percentage.

Locker – A storage compartment that enables a purchaser to pick up merchandise at a convenient satellite location. This arrangement allows for a type of self-service parcel delivery. Customers can select any locker location as their delivery address and can retrieve orders at that location by entering a unique pickup code on the locker touchscreen.

M-commerce – Mobile commerce is buying and selling via non-tethered devices such as smartphones and smart tablets.

Manufacturing Building – A facility used for the conversion, fabrication, or assembly of raw or partly wrought materials into products or goods. 

Master Lease – The controlling lease identifying the terms and length of the lease. Note that a sublease cannot extend beyond the term of the master lease

Mill Rate – Equal to one tenth of a cent. Used in expressing a tax rate Ten mills would be the same as ten dollars per thousand.

Medical Office Building (MOB) – A structure with at least 75 percent of its interior built out to accommodate healthcare providers such as doctors and dentists or healthcare technicians who perform exams with specialized equipment. Typically, the buildings have more robust mechanical, electrical, and plumbing systems as well as reinforced floors to accommodate numerous exam rooms and heavy medical equipment.

Mezzanine Office – Office space that is built in an industrial facility. It is usually along the perimeter of a facility and creates an intermediate floor.

Mixed-use Development (MXD) – The grouping of multiple significant uses within a single site or building such as retail, office, residential or lodging facilities. Examples include office buildings that contain ground-level retail and housing, plus projects that have separate office, retail, and multifamily properties. Clustering of at least three different uses such as office, retail, residential and/or hotel adjacent to or in close walkable proximity to one another. Uses can be contained in the same building or dispersed in different buildings that are adjacent to or close to one another.

Modified Lease – A lease in which the landlord receives a stipulated rent, and payment of the property’s operating expenses is divided between the lessor and lessee via specified terms in the lease; also called “Modified Gross,” “Net-net” (Double Net), “Net-net-net” (Triple Net), etc., depending on the degree to which the tenant or landlord are responsible for operating costs.

Mortgage – A legal document pledging a described property for the performance of the repayment of a loan; a loan secured by a pledge or conditional conveyance of real estate.

Multichannel Retail – The merging of online and brick-and-mortar retail operations so customers can purchase and return items via more than one “channel.” For example, they can buy online and return in store (BORIS), buy online, and pick up in store (BOPIS), buy online and pick up at a locker, etc. 

Multitenant Office Building – A building that is not owner occupied and space that is leased to two or more tenants.

Negative cash flow – When the income from an investment property does not equal the usual expenses. The owner must come up with cash each month to meet these expenses.

Neighborhood Shopping Center – This type of retail property is anchored by supermarkets and drug stores, the centers are typically one-level, rectangular structures with surface parking in the front and merchandise loading areas in the back. They provide for the sale of convenience goods (food, drugs, etc.) and personal services (laundry, dry cleaning, etc.) for the day-to-day living needs of the immediate neighborhood. 

Net Absorption – The net change in occupied space over a specified period. This change is measured in square feet at the building, submarket and market levels. This figure reflects the amount of space occupied as well as the amount of space vacated. Net absorption can be either positive or negative and must reflect increases and decreases in inventory levels.

Net Cash Flow – Net cash flow is the annual income produced by an investment property after deducting allowances for capital repairs, leasing commissions, tenant inducements (after the initial lease is up) and debt service from net operating income.

Net income – The difference between effective gross income (property) and the operating expenses including taxes and insurance. The term is qualified as net income before debt service. (NOI profitability before adding financing or tax costs)

Net lease – A lease requiring the tenant to pay, in addition to a fixed rental, the expense of the property leased, such as taxes, insurance, maintenance etc.

Net operating income – Also known as NOI. This is the annual net income remaining after deducting all fixed and operating variable expenses, but before debt service and income tax. The specific formula is: NOI = Scheduled rental income + other income – vacancy and credit losses – operating expenses.

Net Present Value – Discount Rate (given) Amount Invested which shows as minus or red Yr1 ACTF, Yr2 ACTF, Yr3 ACTF, Yr4 ACTF, Yr5 ACTF + STER = NPV

Net rent multiplier – The factor resulting from dividing the net operating income into the sale or purchase price.

Net rentable area – Also known as net rentable square feet. This is the total amount of square feet that can be used for rental income. It typically excludes stairways, elevators, hallways, common areas, etc.

Net-net lease – A lease in which the tenant pays a rent to the landlord that includes all real estate taxes only and does not include any portion of the operating expenses.

Net-net-net lease – Also known as a triple net lease when the tenant pays rent to the landlord that does not include all property taxes and operating expenses.

Net Sale Price 

New Space – Space delivered to the market that was never previously leased or occupied by a tenant.

Non-conforming use – Property used for purposes that do not conform to the permitted uses in the municipal or provincial zoning by-laws.

Occupancy Cost – Includes rent, real estate, and personal property taxes, plus insurance, depreciation, and amortization expenses.

Occupied Space – Space that is physically occupied by a tenant, subtenant, or owner. Occupied space is calculated by subtracting total vacant space from total competitive inventory. If subtenant space is excluded from the calculation, then the term “direct occupied space” is recommended.

Office Building – A structure providing environments that are conducive to the performance of management and administrative activities, accounting, marketing, information processing, consulting, human resources management, financial and insurance services, educational and medical services, and other professional services. At least 75 percent of the interior space is finished to accommodate office users, but the rest of the space can include other uses such as retail, restaurant, or fitness.

Office Condominium – Refers to the ownership structure of an office property in which individual units housed in one structure are sold to independent owners. Typically, there are covenants that govern the activities that can be carried out in and improvements that can be made to each unit. Such covenants also stipulate the distribution of costs related to the maintenance and operations of common elements in the building such as the roof and the elevators.

Office Park or Office Campus – Contiguous acres of land, master-planned with roads, sidewalks and trails, and extensive landscaping that accommodate stand-alone office buildings with adjacent surface parking lots or parking structures.

Office Percentage – The percentage of total square feet in an industrial building that is built for use as office space. When the mezzanine office is built above a space that would otherwise be an industrial work area, this additional square footage is not counted in the total square footage of the building.

Omnichannel Retail – The merging of online and brick-and-mortar retail operations so customers can purchase and return items via more than one “channel.” Examples: buy online and return in store (BORIS), buy online, and pick up in store (BOPIS), buy online and pick up at a locker, etc. (Multichannel Retail)

On-site improvements – Work completed on a property that improves its value.

Option – The right to purchase or lease a property at a certain price within a designated period for which a consideration is paid.

Online or Pure Play Retailer – A retailer that sells exclusively online and does not have any brick-and-mortar retail locations.

Opportunistic Investment – Ground-up development of a real estate project is considered an opportunistic investment. It is an investment in a parcel or site that typically involves some or all the following: rezoning for use or density or both; net new or ground-up construction; conversion of a building from one use to another; complete gut or significant rehab of a building, requiring that it be entirely vacant to complete; introduction of uses not previously seen on this parcel or in this area; etc.

Owner Occupied Building – Buildings that are occupied by the owner and that generally are not included in the competitive inventory.

Payback period – The time required for the complete recovery of an investment; often used with the concept that all income is considered a return of capital until the entire investment is recaptured and that income received after complete payback is considered profit.

Percentage lease – A percentage lease is when the tenant pays a minimum rent then also pays a percentage of the volume of the business done on the premises whichever is greater. The percentage paid differs according to the types of business.

Phase I Level Audit – This refers to an initial environmental assessment of a facility by a qualified environmental engineering firm for potential contamination to determine if further investigations are warranted. Phase II level audit investigations would require further subsurface sampling, electromagnetic and hydro-geological study.

PGI (Potential Gross Income) – Vacancy & Bad Debt

Pop-up Retail – A retail store, restaurant or kiosk intentionally designed to be in a location for a finite amount of time (i.e., a restaurant that opens for six months so it can test a market, or a store that operates in a location during the holiday season only).

Power Center – Among the largest types of retail properties, they typically feature three or more big box retailers such as Home Depot, Target, and Walmart. Various smaller retailers are usually clustered together in a community shopping center configuration. Power centers are typically made up of multiple large buildings that are one-level, rectangular structures with surface parking in the front and merchandise loading areas in the back. Often, more money is spent on features and architecture at these locations than at big box shopping centers. 

Pre-lease – The leasing of a property or space that has not been developed or constructed.

Pro Rata Share – The percentage that, when multiplied by reimbursable expenses (less an expense if referring to a gross lease), equals the amount to be reimbursed by a tenant to the landlord for expense recoveries. Typically, the percentage is calculated by dividing the net rentable area of a tenant’s leased premises by the net rentable area of the building, although this is not always the case.

Proposed or Planned – A building that has received zoning approval but has not yet started construction.

Push-back Rack – Racking system with a sliding device that pushes back pallets, thereby allowing multiple pallets to be placed in the same location.

Pro Forma – Means “for form only.” A study prepared to estimate future Income, expenses and potential profit or loss.

Qualify – First stage of four-stage transaction management process pertaining to the process of gathering and evaluating information to measure a client’s readiness, willingness, and ability to consummate a transaction.  The acronym QUALIFY represents the considerations of quantify, usage, authority, latitude, intention, financial, and yield involved in the qualify stage.

Quality of Life – The psychological and individual aspects of social well-being as perceived and experienced by people in reference to a given geographic area, which reflect a state of mind or position on the prevailing quality of existence in relation to various socio-economic and environmental conditions and/or amenities known to be associated or found within that area.

Quantum Meriut “the amount one deserves” or “as much as one has earned” in case law. In most cases it denotes a claim for a reasonable sum in respect of services or goods supplied to the defendant. 

Radius Clause – In a percentage lease, it is customary to have a clause that details the distance from the property that a competing store from the same chain may be located. This is usually a distance sufficient so that two stores from the same chain are not in the same trade area.

Rail Door – A door that is generally side-loading, that has access to railroad tracks, and that facilitates the loading or unloading of goods from a railroad car to an industrial building.

Rail Service – A railroad spur adjacent to a building structure that allows the building to be served by rail operations.

Ramp Door – A dock-high door that has been converted to a drive-in door by creating a ramp from ground level to dock level.

Real Estate Investment Trust (REIT) – A REIT is a company that owns or finances income-producing assets, such as apartments, shopping centers, offices, and warehouses. It may also invest in air or water rights, unharvested crops, permanent structures, and structural components that are part of a structure but don’t themselves produce income. Shares of REITs can be traded like stocks and can allow owners of the shares to participate in the real estate market.

Real Estate Owned (REO) – A sale in which a lender, either institutional or private, sells a property that the lender has taken back through foreclosure.

Recapitalization – A term used when owners liquidate some or most of their ownership position in an asset by selling some or most of their equity position.

Redevelopment – A building or site that involves teardown and rebuilding of most—if not all— structures on that site. This change typically occurs in sought-after areas that are usually well located, where buildings have become unattractive or obsolete or where there is a demand for different uses.

Regional Shopping Center – Among the largest types of retail properties, the center typically features large anchor tenants that sell general merchandise and fashion. Regional shopping centers were historically configured like traditional suburban malls, but many have evolved to Town Center or Main Street retail formats. Parking is accommodated via surface or structure spaces or both. 

Relet Space – Sometimes called “second-generation space,” it refers to existing space that was previously occupied by a tenant.

Renewal Option – The right of a tenant to extend the lease term for a specified period at a predefined rental rate. In many instances, the rate is defined as a percentage of market rent, and in other instances, the rate is a specified dollar amount. An auto-renewal option is a type of renewal option whereby the lease term is extended automatically on the expiration date without any notification requirement. Often, there is a date by which this option must be executed; otherwise, the option expires.

Renovation – Upgrading and modernizing common areas in a building such as lobbies, bathrooms, parking areas, etc. The tenant remains in the building, and the building use and square footage do not change. Renovation is often done together with a retrofit.

Rentable Building Area (RBA) – The total square footage of a building that can be occupied by or assigned to a tenant for the purpose of determining a tenant’s total rental obligation. Generally, RBA includes common areas in the building including hallways, lobbies, bathrooms, and phone/data closets. (Synonym: gross building area)

Retail Premises – Premises used for the sole purpose of selling goods and/or services to the public.

Retail Flagship – Flagship stores serve as retailers’ main stores and are aimed at serving large numbers of customers. They are found in prominent shopping districts (e.g., Madison Avenue, Savile Row) and target high-income shoppers. They are typically larger than outlet or mall stores and hold large volumes of merchandise. A retailer’s primary location, a store in a prominent location, a chain’s largest store, the store that holds or sells the highest volume of merchandise, or a retailer’s best-known location.

Retrofit – Modernization of building systems such as heating, ventilation, and air conditioning (HVAC); security; fire alarms; and energy management. The tenant remains in the building, and the building use and square footage do not change. Retrofit is often done together with a renovation.

Return on Investment (ROI) – A measure of the value created by a real estate investment. It is the difference between the net gains from investing in the property less the net cost from investing in the property divided by the purchase price of the property. Usually, it is reported as a percentage.

Sale or Leaseback – An owner-occupied property that is sold to a third-party investor. The previous owner becomes the tenant that pays rent to the new owner. This tactic allows property owners to convert their ownership (equity) into cash while still occupying the property. The seller’s (now the tenant’s) lease term must be for two or more years.

Secured Compartmental Information Facility or Sensitive Compartmented Information Facility (SCIF) Space – Highly secure space that meets specialized design guidelines and restrictions for building systems relating to data, power, communications, security, ductwork, ventilation and more. The highly controlled facilities are required by firms such as defense contractors or law firms that deal in sensitive industries.

Service Center or Showroom – A type of flex facility characterized by a substantial showroom area, usually fronting a freeway or major road. 

Shadow Space – A portion of leased space that is not being used by the tenant. This area can include unused space that a tenant leased and is holding for expected future growth. It can also include unused space that was previously occupied but is no longer used because of downsizing the company’s workforce. Shadow space is difficult to measure because it is not officially marketed or tracked in industry databases. (Synonym: phantom space)

Shell Space – Space within a property that is currently not built out.

Short Sale – When the sale price of an asset is less than the amount owed to the lender and when the lender accepts this amount as full payment for the loan. Those funds not repaid to the lender will be written off.

Side-loading Dock – A loading dock configuration designed to facilitate the loading and unloading of a vehicle through its side.

Single-tenant Office Building – A building for which there is a single lease obligation.

Speculative – A building developed and constructed without any preleasing in place. Construction commences without a prelease when the developer believes there is so much demand for that type of building in that market or submarket that a lease commitment is bound to come through.

Stabilized Cap Rate – A stabilized cap rate is the ratio between the net operating income produced by a property upon achieving target occupancy, and its purchase value.

Stacking Plan – A floor-by-floor and suite-by-suite graphical representation of each floor and suite within a building. The plan shows the suite number, the square footage of each suite and the tenant occupying each. On many stacking plans, lease expiration dates are also provided to give a quick view of the occupancy exposure within a building.

Straight-line Rent – The accumulation of rental income (including months that have free rent, discounted rent, and fixed-rent increases) divided by the term of the lease will generate a straight-line rent. Straight-line rent provides a way to compare rents on various properties using a consistent methodology.

Strip Shopping Center – A strip shopping center is an attached row of stores or service outlets that are managed as a coherent retail entity with onsite parking usually located in front of the stores. Open canopies may connect the storefronts, but a strip center does not have enclosed walkways linking the stores. A strip center may be configured in a straight line or may have an “L” or “U” shape.

Sublet Space – Space offered for lease indirectly by a tenant rather than directly by a landlord.

Submarket – Submarkets are geographic divisions of markets. These smaller divisions or boundaries are generally recognized and accepted by the real estate industry and the business community in a market and region. Submarkets are geographic boundaries that delineate core areas that are competitive with one another, and together they constitute a generally accepted secondary set of competitive areas. In the real estate industry, submarkets are building-type specific and are nonoverlapping contiguous geographic designations with a cumulative sum that matches the boundaries of a market. They contain properties sufficient to provide meaningful information for aggregate statistics.

Suburban – Suburban means a geographic area that contains a variety of property types arranged in a setting that is less dense than neighboring urban areas. This broad term can be defined or measured several ways and is often defined relative to urban and exurban areas.

Super Flat Floors – Concrete floors with minimal variations in elevation from point to point. The floors are found primarily in warehouses with automated systems. Precisely calibrated and leveled picking machinery and racks require level flooring to ensure proper operation.

Super-regional Shopping Center – The enclosed, large anchor tenants that sell general merchandise and fashion offer more variety than does a regional center. 

Sustainable Development – In commercial real estate (CRE), this term generally means the practice of developing, redeveloping and operating CRE in ways that cause zero, minimal or improved environmental impact.

Tax Rate – marginal and given by municipality 

Tax on Capital Gain 

Tax on Recapture – Total CCA (add all CCA amounts) * Marginal Tax Rate 

TMI (Taxes, Maintenance, and Insurance). In a net rent situation, the tenant will pay a portion of the landlord’s realty taxes, maintenance expenses and property insurance based on the percentage of the building the tenant is occupying.

Undepreciated Capital Cost (UCC) is the depreciated tax cost of depreciable property, calculated as the original cost less capital cost allowance (CCA) deducted in prior taxation years.

Unencumbered – This is a property or land that has no liens, claims, or mortgages against it.

Vacancy rate – The percentage of total scheduled rental income lost to vacancy and bad credit costs.

Wealth Maximization – the concept of increasing the value of a business in order to enhance the value of the shares held by its stockholders. This may involve additional investments in intellectual property and strategic positioning, as well as attention to managing the risk profile of a business.

Weighted Average – a calculation that takes into account the varying degrees of importance of the numbers in a data set. You can compute a weighted average by multiplying its relative proportion or percentage by its value in sequence and adding those sums together. Thus, if a portfolio is made up of 55% stocks, 40% bonds, and 5% cash, those weights would be multiplied by their annual performance to get a weighted average return. So if stocks, bonds, and cash returned 10%, 5%, and 2%, respectively, the weighted average return would be (55 × 10%) + (40 × 5%) + (5 × 2%) = 7.6%.

Yield Rate – This is the ratio of income from an investment to the total cost of the investment over a given period.

Zoning – The rules of a municipality that detail the allowable uses for the real property in specific areas, and only then on specified conditions.