- A -
Abatement: A reduction or decrease; usually applies to the forgiveness
of rent or a decrease of assessed valuation of ad valorem taxes after the
assessment and levy.
Above Building Standard: Specialized design and engineering services
and all construction necessary to personalize tenant space.
Absorbed Space: Net change in leased space between two dates.
Absorption: The rate at which land or buildings will be sold or leased
in the marketplace during a predetermined period of time, usually a month or a
year. Also called "Market Absorption."
Absorption Period: The number of months required to convert vacant
space into leased space assuming no new delivered space. Computed by dividing
the average monthly absorbed space during a recent period into the current
Ad Valorem: (According to value) Used in reference to general property
tax, which is usually based on the official valuation of property.
Add-On Factor: Considered a loss factor, the percentage of gross
rentable square footage which is lost to the tenants physical
Adequate Rate Covenant: An agreement often required in revenue
bond-financed projects; guarantees the operator will charge adequate rates to
produce revenue necessary to cover principal and interest payments.
Alienation Clause: A type of acceleration clause where a debt becomes
due in its entirety upon the transfer of owner-ship of a secured property. See
also "Due on Sales Clause" and "Acceleration Clause."
Allowance Over Building Shell: One of three arrangements often used for
financing tenant improvements (finishing out office space to accommodate a
tenant such as walls, doors, carpeting etc.) This arrangement caps the
landlords expenditure at a fixed dollar amount over the negotiated price
of the base building shell. This arrangement is most successful when both
parties agree on a detailed definition of what construction is included and at
what price. Tenants may ask for a contingency in the event the actual build-out
costs are less than the allowance, requiring the landlord to return the savings
in the form of rent abatement or other concession.
Annual Percentage Rate (APR): APR reflects the cost of a loan on a
yearly basis. It may be higher than the note rate because it includes interest,
loan origination fees, loan discount points, and other credit costs paid to the
Anticipatory Breach: Occurs when one party to a contract, prior to time
of performance, informs the other of his or her intent not to perform. Example:
The buyer informs the seller before the closing date of his or her intent not
Appraisal: The estimation and opinion of value placed upon a piece of
land based upon a factual analysis by a qualified professional; the process of
estimation and the report itself.
Appreciation: An increase in the value of property caused by an
improvement or the elimination of negative factors.
"As Is" Condition: Premises accepted by a buyer or tenant in
the condition existing at the time of the sale or lease, including all physical
Assessment: (1) An estimate of property value for the purpose of
imposing taxes. (2) A fee imposed on property, usually to pay for public
improvements such as streets and sewers.
Asset-Based Lender: A lender who loans money based primarily on the
values of an asset—accounts receivable, inventory, a place of equipment, real
estate—rather than on the financial strength of the business, which is the
primary criterion for banks.
Assignment: A transfer between parties of title to any property, real
or personal, or of any rights or estates in the property. Common assignments
include leases, mortgages and deeds of trust.
Attachment: Legal procedure to aid in the collection of a debt. Usually
the court issues a writ to seize the property of a debtor and holds it pending
the outcome of a lawsuit, keeping the property available for sale to pay any
money judgement entered in such lawsuit.
Attorn: To turn over or transfer to another money or goods. To agree to
recognize a new owner of a property and to pay him rent. See also "Letter
of Attornment." Back to top
- B -
Balloon Payment: A large payment due on a loan. Generally a balloon
payment is required when regular monthly or quarterly payments have not covered
both the increase due and the principal of the loan.
Bankrupt: The condition when one is found to be unable to repay
ones debts by a court having proper jurisdiction. The bankruptcy may be
one of two types: one that is petitioned by the debtor (voluntary) or
petitioned by creditors (involuntary).
Bankruptcy: Proceedings under federal statutes to relieve a debtor who
has been declared bankrupt from insurmountable debt. After addressing certain
priorities and exemptions, the bankrupts property and other assets are
distributed by the court to creditors as full satisfaction for the debt.
Base Rent: A set amount used as a minimum rent in a lease which also
employs a percentage or other allocation for additional rent.
Base Year: The year upon which a direct expense escalation of rent is
based. See also "Escalation Clause."
Below-grade: Any facility or part of a facility located underground or
below the surface grade.
Breach of Warranty: The failure of the seller of real property to pass
title as either expressed or implied by law in the conveyancing document.
Buffer: A strip of land established as a transition between distinct
land uses. May contain natural or planted shrubs, walls or fencing, singly or
Building Classifications: Class "A"— Building has excellent
location and access to attract the highest quality tenants. Building must be of
superior construction and finish, relatively new or competitive with new
buildings, and providing professional on-site management. Class
"B"—Building with good location, management, construction land
tenancy. Can compete at low end of Class A. Class "C"—Generally an
older building with growing functional land/or economic obsolescence. Class
"D"—An older building in need of extensive renovation as a result of
functional obsolescence or deterioration.
Building Code: A set of laws, usually enacted by city ordinance or
other local jurisdiction, regulating the design, materials and construction of
Building Standard: A list of construction materials and finishes used
in building out office space for a tenant that the landlord contributes as part
of the tenant improvements. Examples of standard building items are: doors,
partitions, lights, floor covering, telephone outlets, etc. May also specify
the quantity and quality of the materials to be used and often carries a dollar
value. See also "Workletter."
Building Standard Plus Allowance: One of three arrangements often used
for financing tenant improvements (finishing out office space to accommodate a
tenant such as walls, doors, carpeting etc.) Under this arrangement the
landlord lists in detail all materials and costs to make the premises suitable
for occupancy and provides a negotiated allowance for the tenant to customize
or upgrade materials. See Also: "Workletter."
Buildout: The cost of configuring and finishing new or relet space in
accordance with a tenants specifications.
Build To Suit: A method of leasing property whereby the landlord builds
a new building in accordance with a tenants specifications.
Bullet Loan: Also known as a Construction Loan, any of a variety of
short-term (generally five to seven years) financing provided by a lender to a
developer to cover the costs of construction and lease-up of a new building
with the expectation that it would be replaced by long-term (or
"permanent") financing provided by an institutional investor once
most of risk involved in construction and lease-up had been overcome resulting
in an income-producing property. Back to top
- C -
Capitalization: A process of determining the value of real property in
which project income is divided by a predetermined annual rate (capitalization
rate). For example, a building with annual project income of $100,000 is worth
$1,000,000 at a 10 per cent capitalization rate (S 100,000/10% = $1,000,000).
See "Capitalization Rate."
Capitalization Rate: The rate that is considered a reasonable return on
and of investment (on the basis of both the investors alternative
investment possibilities and the risk of the investment). Used to determine and
value real property through the capitalization process. Also called "free
and clear return." See "Capitalization."
Carrying Charges: Various costs that are incidental to property
ownership (e.g., taxes, insurance costs and maintenance expenses).
Certificate of Occupancy: A certificate issued by a local government
building department or agency stating that a building is in a condition
suitable for occupancy. Sometimes also called a "C of 0" or a
Non-Residential Use and Occupancy Permit (NON RUP).
Chapter 11: A section of the Federal Bankruptcy Code dealing with
business reorganizations. A separate section, referred to as Chapter 7, deals
with business liquidations.
Clear-Span Facility: A parking structure with vertical columns on the
outside edges of the structure and a clear span between columns, making it
unnecessary for vehicles to maneuver between columns.
Common Area: The total area within the shopping center that is not
designed for rental to tenants but that is available for common use by all
tenants or groups of tenants, their invitees, and adjacent stores. Parking and
its appurtenances, malls, sidewalks, landscaped areas, public toilets, truck
and service facilities, and the like are included in the common area.
Common Area Charges: Include income collected from tenants for
operating and maintaining items pertaining to common areas. Shopping center
leases usually contain a clause requiring the tenant to pay its share of
operation and maintenance on common areas and defining the basis on which
charges are made and the type of cost items allocable to maintenance of the
common area. Of the ways to prorate the charges among tenants, the most common
are (1) a prorated charge based on a tenants leased area as a portion of
the total leasable area of the center or the linear exposure in store frontage,
(2) a fixed charge for a stated period, and (3) a variable charge based on a
percentage of sales. Some centers include a cost-of-living increase in the
common area charges.
Comparables: Recorded sales of properties similar in size, use,
construction quality, age, and often located within the same submarket used as
comparisons to determine the fair market value of another particular
Competitive Space: Space in office buildings which contain or are
intended to contain more than one occupant. In addition to the multiple tenant
criterion, typical characteristics of Competitive Space include: tenants
generally have short-term leases (10 years or less) and the interior of the
building is not designed with one organization in mind but rather to
accommodate the widest variety of tenants.
Concessions: Cash expended by the landlord in the form of rent
abatement, build-out allowance, or other payments to induce the tenant to sign
Condemnation: The process by which private property is taken by a
govern-mental agency for public use without the consent of the owner, but only
upon payment of just compensation. See also "Eminent Domain."
Construction Management: Construction supervision by a qualified
Consumer Price Index (CPI): A federal government index that measures
the change in the cost of a variety of goods and services. Used in loans,
purchase agreements and leases as a measure by which to adjust future payments
to reflect inflation. Also called "Cost-of-Living Index."
Contiguous Space: Adjoining office space.
Contract Documents: The design plans and specifications for
construction of a facility. Working drawings that detail for the contractor the
exact manner in which a project should be built. See also
"Specifications;" "Working Drawings."
Contract Rent: Rent paid under a lease. The actual rent as opposed to
the market rental value of the property.
Conveyance: Most commonly refers to the transfer of title to land
between parties. The term may also include most of the instruments by which an
interest in real estate is created, mortgaged or assigned.
Core Factor: The percentage of common areas in a building (rest rooms,
hallways) that, when added to the net usable square footage equals the net
rentable square footage. May be computed for a building or floor of a building.
A "Loss Factor" or "Load Factor" is calculated by dividing
the rentable square footage by the usable square footage. See also "Design
Cost Approach: A method of appraising real property whereby the
replacement cost of a structure is calculated using current costs of
Covenant: A private, legal restriction on the use of land, recorded in
the land records.
Covenant of Quiet Enjoyment: Usually inserted in leases or conveyances
whereby landlord or grantor promises that the tenant or grantee shall enjoy
possession of the premises in peace and quiet without disturbance.
Cumulative Discount Rate: A discount factor applied to the rental rate
that takes into effect all landlord lease concessions expressed as a percentage
of base rent. Back to top
- D -
Dedicate: Transfer of property from private to public ownership.
Deed: Generally, a conveyancing instrument given by the seller to pass
fee title to property upon sale.
Deed In Lieu Of Foreclosure: A deed given by an owner/borrower to a
lender to prevent the lender from bringing foreclosure proceedings.
Deed Of Trust: An instrument securing a loan that is used in many
states in place of a mortgage. Property is transferred to a trustee by the
borrower (trustor), in favor of the lender (beneficiary), and reconveyed to the
borrower upon payment in full.
Default: The general failure to perform a promised task or to pay an
obligation when due. Some specific examples are: (1) Failure to make a payment
of principal or interest or other type of financial obligation when due. (2)
The breach or failure to perform any of the terms of a note or the covenants of
a mortgage or deed of trust.
Deficiency Judgment: Commonly, the amount for which the borrower is
personally liable on a note and mortgage if the foreclosure sale does not bring
enough to cover the amount owed. Actually, the judgment is for the total amount
of the obligation and not for the deficiency. Any recoveries from a foreclosure
sale are deducted from the judgment.
Delivered Buildings: Buildings that have completed construction and are
ready for tenant build out. May or may not yet have a Certificate of Occupancy.
Demising Walls: The boundaries that separate a tenants space from
another tenants space and from a public corridor.
Density: Number of dwelling units divided by the gross acreage being
Design/Build: A system in which a single entity is responsible for both
the design and construction of a facility, often involving the fast-track
method of construction; also referred to as "design/construct."
Depreciation: (1) Decrease in the usefulness, and therefore value, of
real property improvements or other assets caused by deterioration or
obsolescence. (2) A loss in value as an accounting procedure to use as a
deduction for in-come tax purposes.
Distraint: The act of taking (legally or illegally) personal property
and retaining control until the property owner performs an obligation.
Commonly, a landlord takes possession of personal property of a tenant in
default until the default is satisfied.
Distress Sale: The sale of property under less than favorable
conditions. Usually, the seller is experiencing financial difficulties and is
under extreme pressure to sell. Back to top
- E -
Earnest Money: The monetary advance by a purchaser of part of the
purchase price as evidence of good faith. The earnest money is used to bind the
parties to the contract of sale. See also "Deposit."
Easement: A right to use the property of another created by grant,
reservation, agreement, prescription or necessary implication. It is either for
the benefit of land "appurtenant," such as the right to cross A to
get to B, or "in gross," such as a public utility easement.
Economic Feasibility: A projects feasibility in terms of costs
and revenue, with excess revenue establishing the degree of feasibility.
Economic Rent: Calculations or analysis to determine market rental
value of a property at any given time, even though the actual rent may be
Effective Rent: The rental rate actually achieved by the landlord after
deducting the value of concessions from the base rental rate paid by a tenant,
usually expressed as an average rate over the term of the lease.
Efficiency Factor: The number resulting from dividing the Usable Area
by the Gross Building Area in an office building, providing a benchmark
measurement for that buildings use as an office building.
Eminent Domain: A right of the government to acquire private property
for public use by condemnation, in return for just compensation.
Encroachment: Generally, a structure which extends impermissibly over a
property line, easement boundary or building setback line.
Encumbrance: Any right to, or interest in, real property that may exist
in one other than the owner, but which will not prevent the transfer of fee
title. A claim, lien, charge or liability attached to and binding real
Environmental Impact Report: A report generally prepared by an
independent company detailing the probable environmental effect of a
development on the surrounding area.
Equity: The value of ones interest in a property, consisting of
its fair market value less any outstanding debt or other encumbrances.
Equity Kicker: Also called a participation loan. Under this kind of
loan often used by non-bank lenders with start-up businesses—the lender gets
not only interest payments and principal repaid, but the right to buy equity
(part ownership in the company) as well. Equity participation is generally
required for riskier deals or in return for lower rates.
Equity Participation: The participation by a lender in the equity
ownership of a project as one of the conditions for granting a loan. Used by
financial institutions to partially offset the effects of inflation. Also
called "Equity Kicker."
Equity of Redemption: Not the same as the redemption period after a
foreclosure sale, which is a right established by statute. Properly, the right
to pay off the mortgage lien in default by payment of the principal, interest
and costs due.
Escalation Clause: A clause in a lease providing for increased rent at
a future time. May be accomplished by several means such as (1) Fixed
increase—A provision that calls for a definite, periodic rental increase; (2)
Cost of living—A clause that ties the rent to a government cost of living
index, with periodic adjustments as the index changes; or (3) Direct
expense—Rent adjustments based on changes in expenses paid by the landlord,
such as tax increases, increased maintenance costs, etc.
Estoppel Certificate: A statement concerning the status of an agreement
and the performance of obligations under the agreement relied upon by a third
party, including a prospective lender or purchaser. In the context of a lease,
a statement by a tenant identifying that the ease is in effect and certifying
that no rent has been prepaid and that there are no known outstanding defaults
by the landlord (except those specified).
Escrow Agreement: A written agree-ment usually made between a buyer,
seller and escrow agent. The escrow agreement sets forth the basic obligations
of the parties, describes the objects deposited in escrow, and instructs the
escrow agent concerning the disposition of the objects deposited.
Exclusive Listing: A written agreement between a real estate broker and
a building owner in which the owner promises to pay a fee or commission to the
broker if specified real property is sold or leased during a stated period. The
broker may or may not be the cause of the sale or lease.
Expense Stop: Provision in a lease establishing the maximum level of
operating expense(s) to be paid by the landlord. Expenses beyond this level are
to be reimbursed by the tenant. May be applied to specific expenses only (e.g.,
property taxes or insurance). Back to top
- F -
Face Rental Rate: The "asking" or nominal rental rate
published by the landlord.
Fair Market Value: A term usually found in appraisals that attempts to
determine the cash price that would likely be negotiated between a willing
seller and willing buyer in a reasonable amount of time. For a sale to be
considered a reflection of "Fair Market Value," it must meet all the
conditions of a fair sale whereby: (1) both buyer and seller act prudently,
knowledgeably and under no necessity to buy or sell, i.e., other than in a
forced or liquidation sale; (2) the property must be offered on the open market
for a reasonable amount of time, taking into consideration the property type
and local market; and (3) payment is made in cash or terms equivalent to cash.
When a sale is unlikely, i.e., when it is unlikely to be completed within 12
months, the appraiser must discount all cash flows generated by the property to
ascertain the estimate of Fair Value.
Feasibility Study: An analysis of needs, costs of recommended
improvements, and anticipated revenue and costs; establishes the basis for the
construction of an individual improvement or a complete system.
Fee Simple: An estate of real property that the owner has unrestricted
powers to dispose of and which can be left by will or inherited. Commonly used
as a synonym for ownership.
Finance Charge: The cost of credit as a dollar amount. It includes any
charges payable by the borrower as a condition of the loan. The finance charge
includes the total amount of interest, points, loan fees and other credit
charges paid for the term of the loan.
FIRREA: The Financial Institutions Re-form Recovery and Enforcement Act
of 1989. Created the Resolution Trust Corp. (RTC) and placed new restrictions
on savings and loans regarding real estate investment.
First Mortgage: A mortgage creating a lien against a property which has
priority over all other voluntary liens which exist against the property.
Foreclosure of a first mortgage lien will generally extinguish or cut off any
second mortgage lien or other subordinate lien.
First Refusal Right: A clause occasionally inserted in a lease that
gives a tenant the first opportunity to buy a property if the owner decides to
sell. The owner must have a legitimate offer which the tenant can match or
Fixed Costs: Costs, such as rent, which do not fluctuate in proportion
to the level of sales or production.
Flex Space: A one or two story buildings with little or no common
areas, high ceilings, load bearing floors and loading dock facilities. Usually
configured to allow a small amount of office space in combination with light
assembly or warehouse/distribution uses.
Floor/Area Ratio (FAR): The ratio of the bulk area of a building to the
land on which it is situated. Calculated by dividing the total square footage
in the building by the square footage of land area.
Floodplain: Land adjoining a river that would flood if the river
overflowed its banks.
Force Majeure: A force that cannot he controlled or resisted. In other
words, something beyond the control of the parties involved. Includes acts of
God (e.g., flood, tornadoes, etc.) and acts of man (e.g., riots, strikes,
Foreclosure: A proceeding, in or out of court, designed to extinguish
all rights, title, and interest of the owner(s) of property in order to sell
the property to satisfy alien against it.
Full Recourse: A borrowing with an unconditional guaranty. Should the
harrower become delinquent under a full recourse loan, he or she must accept
full responsibility for the loan.
Full Service Rent: A rental rate that includes operating expenses and
real estate taxes for the first year. The tenant is generally still responsible
for any increases in operating expenses over the base year amount.
Functional Design: Design of a structure or facility that increases its
overall efficiency and provides maximum user acceptance; a parking concept plan
showing traffic flow, stall geometry, and other features that determine the
interior design of parking facilities.
Future Proposed Space: Commercial space in proposed development
projects which either have not started construction or set a construction start
date. Future Proposed projects include all those waiting for a lead tenant,
financing, zoning, approvals or any other event necessary to begin
construction. Also may refer to the future phases of a multi-phase project that
have not yet been built. Back to top
- G -
General Contractor: The party that contracts for the construction of an
entire building or project, rather than a portion of the work. The general
contractor hires subcontractors, (e.g., plumbing contractors, electrical
contractors, etc.), coordinates all work, and is responsible for payment to the
General Partner: A member of a partnership who has authority to bind
the partnership. A general partner also shares in the profits and losses of the
partnership. See also "Limited Partnership;"
Graduated Lease: A lease, generally long term in nature, with varied
rental payments and usually based on periodic appraisal or simply the passage
Grant: To transfer an interest in real property; either the fee or a
lesser interest, such as an easement.
Grantee: One to whom a grant of property or property rights is made;
generally, the buyer.
Grantor: One who grants property or property rights; generally, the
Gross Absorption: Absorption is a measure of the amount of office space
leased over a period of time. Gross absorption is a measure of the total square
feet leased over a period of time with no consideration for office space
vacated in the same area during the same period. See also: "Net
Gross Building Area: The total floor area in an office building
measured in square feet or square meters that is associated with that
buildings use as office building. The area extends to the outer surface
of exterior walls and windows and includes office area, retail area, and other
rentable areas such as vending machine space and storage area, but excludes
parking and roof space.
Gross Lease: A lease that provides that the landlord shall pay all
expenses of the leased property, such as taxes, insurance, maintenance,
Ground Lease: A lease covering the use of land only, with the lease
sometimes secured by improvements installed by the tenant.
Ground Rent: Rent paid for vacant unimproved property. If the property
is improved, ground rent is that portion of the total earnings attributable to
the land only.
Guarantor: One who makes a guaranty.
Guaranty: Agreement whereby the guarantor agrees to pay the debt or
perform the obligation of another who fails to do so. Differs from la surety
agreement in that there must be a failure to pay or perform before the guaranty
can be in effect. Back to top
- H -
Hard Dollars: The actual cash proceeds from a loan that are given to
Highest and Best Use: The reasonably probable and legal use of vacant
land or an improved property, which is physically possible, appropriately
supported, financially feasible, and that results in the highest value. The
four criteria the highest and best use must meet are legal permissibility,
physical possibility, financial feasibility and maximum profitability.
High Rise: A building higher than 25 stories above ground level.
Hold Over Tenant: A tenant who retains possession after the expiration
of a lease.
HVAC: The acronym for Heating Ventilating and Air-Conditioning. Refers
to the equipment used to heat and cool a building. Back to top
- I -
Improved Value: An appraisal term that encompasses the total value of
land and improvements rather than the separate values of each.
Improvements: Generally, the term refers to buildings, but may include
any permanent structure or other development, such as a street, utilities, etc.
Indirect Costs: Development costs other than direct material or direct
labor costs, including administrative and office expenses, financing costs and
Inventory: When referring to a market of office or industrial space,
the total amount of rentable square feet of existing and delivered space in a
given category, for example, prime office space. Inventory refers to all space
within a certain proscribed market without regard to its availability or
condition, and can include both office and flex and warehouse space.
Involuntary Conveyance: An involuntary transfer of real property
without the consent of the owner, such as by a divorce decree, condemnation,
etc. Back to top
- J -
Judgment: The decision of a court of law. Money judgments, when
recorded, become a lien on real property of the defendant.
Judgment Lien: A lien placed against the property of a judgment debtor.
An involuntary lien.
Judgment Mortgage: A mortgage creating a lien which is inferior or
subordinate to a prior lien. Foreclosure of a junior mortgage will not
extinguish any lien which is superior to it.
Just Compensation: In a condemnation proceeding, the term refers to the
amount paid to the property owner. The story is that in order to be
"just," the property owner should be no richer or poorer than before
the taking. Back to top
- L -
Land Contract: An installment contract for the sale of land whereby the
seller has legal title until paid in full. The buyer has equitable title during
the contract term.
Landlords Lien: Several types of landlords liens are
created by contract or by statute. Some examples are: 1) a contractual
landlords lien; 2) statutory landlords lien; and 3) landlords
remedy of distress (or right of distraint), which is not truly a lien but has a
Landlords Warrant: A warrant enabling a landlord to levy upon a
tenants personal property (e.g., furniture, etc.) and to sell this
property at a public sale to collect delinquent rent.
Land, Tenements and Hereditaments: Originally used to describe freehold
estates only. The terms have come to mean the most technical and all-inclusive
description of real estate.
Lease: An agreement whereby the owner of real property (i.e., landlord)
gives the right of possession to another (i.e., tenant) for a specified period
of time (i.e., term) and for a specified consideration (i.e., rent).
Lease Commencement Date: The date on which beneficial occupancy
commences and the legal terms of the lease go into effect.
Leasehold Improvements: Improvements made to leased premises by a
Legal Description: A method of geographically identifying a parcel of
land that is acceptable in a court of law.
Legal Owner: The term is used to distinguish the legal owner from the
equitable owner and not as opposed to an illegal owner. The legal owner has
title to the property, although the title may actually carry no rights to the
property other than to act as a lien.
Legal Title: Usually title without ownership rights, such as the title
placed in a trustee under a deed of trust, or the title in a vendor under a
Letter of Credit: An engagement, pledge or commitment by a bank or
person, made at the request of a customer, stating that the issuer will honor
drafts or other demands for payment upon full compliance with the conditions
specified in the letter of credit.
Letter of Attornment: A letter from a grantor to a tenant, stating that
a property has been sold, and directing rent to be paid to the grantee (i.e.,
the new owner). See also "Attorn."
Letter of Intent: A formal method through which a prospective
developer, buyer or tenant expresses his/her interest in property. Depending on
the language, a legal obligation may be created.
Lien: An encumbrance against property for money, either voluntary or
involuntary. All liens are encumbrances but all encumbrances are not liens.
Lienholder: A mortgagee or other creditor who has a lien against the
property of another.
Lien Waiver (Waiver of Liens): Generally, a waiver of mechanics
lien rights signed by a general contractor and his subcontractors.
Like-Kind Property: A tax term used in certain real property exchanges.
Property must be exchanged for like kind property and the tax consequences
postponed pursuant to Section 1031 of the Internal Revenue Code.
Limited Partnership: A partnership created under state law which
consists of one or more general partners who conduct the business and are
responsible for any losses, and one or more special or limited partners who
contribute capital and are liabLe only up to the amount contributed.
Listing Agreement: An agreement between a real estate broker and the
property owner which authorizes the broker to assist in the sale or lease of
that property in return for a fee, commission or other form of compensation.
See also: ‘Exclusive Listing Agreement."
Long Term Lease: A lease whose term exceeds ten years from initial
signing until the date of expiration or renewal option.
Low Rise: A building with fewer than seven stories above ground
Lump-Sum Contract: A construction contract requiring the contractor to
complete a building for a specified amount, usually established by competitive
bidding. The contractor absorbs any loss or retains any profit. Back
- M -
Maker: One who executes (i.e., signs) a note in the capacity of the
maker (i.e., borrower).
Market Indicators: Statistical measures of construction and real estate
activity, including issued permits, indices of building costs, deeds recorded
and homes for sale.
Market Price: The price a property brings in a given market. Commonly
used interchangeably with market value, although not truly the same.
Market Rent: See "Economic Rent."
Market Study: A forecast of future demand for a type of project along
with recommendations as to quantity to be sold or leased and prices to be
charged. Also called "Marketability Study."
Marketable Title: Title to real property that can be readily marketed
(i.e., sold) to a reasonably prudent purchaser aware of the facts and their
legal meaning concerning liens and encumbrances.
Market Rent: The rental income that a property would most probably
command on the open market; indicated by current rents paid and asked for
comparable space as of the date of the appraisal.
Market Value: The most probably price which a property should bring a
competitive and open market under all conditions requisite to a fair sale, the
buyer and seller, each acting prudently and knowledgeably, and assuming the
price is not affected by undue stimulus. Implicit is this definition is the
consummation of a sale as of a specified date and the passing of title from
seller to buyer under conditions whereby: (1) buyer and seller are typically
motivated; (2) both parties are well informed or well advised, and acting in
what they consider their own best interests; (3) a reasonable time is allowed
for exposure in the open market; (4) payment is made in terms of cash in U.S.
dollars or in terms of financial arrangements comparable thereto; and (5) the
price represents the normal consideration for the property sold unaffected by
special or creative financial or sales concessions granted by anyone associated
with the sale.
Master Lease: A primary lease that controls subsequent leases and which
may cover more property than sub-sequent leases.
Master Plan: (1) A zoning plan for an entire governmental subdivision,
(e.g., a city). A comprehensive plan to allow a city to grow in an orderly
manner, both economically and ecologically. (2) A developers plan for a
multi-phase office park or mixed use development that takes into account all
proposed or projected uses, improvements and amenities.
Mechanics Lien: A claim created by state statutes for the purpose
of securing priority of payment for the price or value of work performed and
materials furnished in construction or repair of improvements to land, and
which attaches to the land as well as to the improvements.
Metes and Bounds: The boundary lines of land described in accordance
with their terminal points and angles. Originally metes referred to distance
and bounds referred to direction. Today the words have no individual meaning of
Mid-Rise: A building with between seven and 25 stories above ground
Mixed-Use: Space within a building or project provided for more than
one use (e.g., an apartment building with office space, a hotel with office
space, or a retail establishment with apartments).
Mortgage: The instrument that evidences an interest in real estate and
created to provide a pledge as security for the performance or repayment of a
loan. The borrower (i.e., mortgagor) retains possession and use of the
Mortgagee: The party that lends the money and receives the
Mortgagor: The party that borrows the money and gives the mortgage on
the property. Back to top
- N -
Net Absorption: Absorption is a measure of the amount of office space
leased over a period of time. Net absorption is a measure of the total square
feet leased over a period of time taking into consideration office space
vacated in the same area during the same period.
Net Lease: A lease in which the tenant pays, in addition to rent,
certain costs associated with a leased property, including property taxes,
insurance premiums, repairs, utilities, and maintenance. There are also
‘net-net" (double net) and ‘net-net-net" (triple net) leases,
depending upon the degree to which the tenant is responsible for operating
Net Rentable Area: Floor area of a building less any vertical
penetrations of the floors. No deductions are made for necessary columns and
projections of the building. (BOMA Standard)
Non-Competitive Space: Space in office buildings which contain or are
intended to contain one office occupant so that the space is rarely if ever
available for lease or sublease.
Non-Recourse Loan: A loan which does not allow for a deficiency
judgment against a borrower in the event of default. The borrower cannot be
held personally liable. The lenders only available recourse in the event
of default is the collateral or property.
Nonjudicial Foreclosure Sale: A property sale by a trustee under a deed
of trust, or a mortgage under a power of sale of a mortgage. Back
- O -
Open Space: The total area of land and/or water not improved by a
building, structure, street, road or parking area, or containing only such
improvements as are complementary, necessary or appropriate to the use and
enjoyment of the open area.
Operating Expenses: The actual cost of operating income producing
property, including utilities and similar day-to-day expenses, taxes, insurance
and reserves for the replacement of items that wear out.
Operating Cost Escalation: Refers to the clause in a lease agreement
used to adjust rents over the term of a lease.
Ownership: Rights to the use, enjoyment, and alienation of property to
the exclusion of others. Back to top
- P -
Parking Index: Figure representing the number of parking spaces
available per 1,000 square feet of gross leasable area.
Partial Taking: The taking of part of an owners property under
the laws of eminent domain. Compensation must be based on damages or benefits
to the remaining property, as well as the portion taken.
Pass Throughs: Building and operating expenses that are paid by the
tenant under the terms of a lease.
Percentage Lease: A lease, generally on a retail business property, in
which the rent is calculated as a percentage of sales. There is usually a
minimum or "base" rent in the event of poor sales.
Performance Bond: A bond posted by a contractor guaranteeing the owner
that the bonding company will complete construction if the contractor defaults.
"Phantom" Space: Generally refers to space that is under
lease to a tenant but not presently occupied. Usually created when a tenant
consolidates or reduces operations in space it leases prior to the end of its
lease term. The vacant but leased space may or may not be formally marketed on
a sublet basis or counted among a markets vacancy.
PITI (Principal, Interest, Taxes And Insurance): Acronym used to
indicate what is included in a monthly mortgage payment on real property.
Principal, interest, taxes and insurance are the four major portions of a
typical monthly payment.
Planned Delivery Space: Office space that is currently under
construction or renovation and will be completed (delivered to the market)
within two years. Does not include Proposed or Future Proposed Space.
Plat (Plat Map): A map dividing a parcel of land into lots, as in a
Power of Sale: Clause in a mortgage or deed of trust giving the
mortgagee or trustee the power to sell the property in the event of
Precast Concrete: Concrete building components fabricated at a plant
site and shipped to the site of construction.
Prelease: A signed lease for space in a multi-tenant office building
which has not yet received a Certificate of Occupancy.
Prime Space: First generation (new) space that is currently available
for lease but has never before been occupied by a tenant.
Prime Tenant: The major tenant in a building, shopping center, etc.
Proffer: A development plan and/or written condition that, when offered
by an owner and accepted by the county, becomes a legally binding part of the
property in question.
Punch List: An itemized list noting incomplete or unsatisfactory
construction. Usually prepared by the tenant architect after the contractor has
notified the owner that the tenant space is substantially complete.
Back to top
- Q -
Quitclaim Deed: A deed operating as a release and, as such, intended to
pass to the grantee any title, interest, or claim that the grantor may have in
the property, but not containing any warranty of valid interest or title in the
grantor. Back to top
- R -
Raw Land: Land in its natural state. Land that has not been subdivided
into lots, does not have water, sewers, streets, utilities, or other
improvements necessary before a structure can be constructed.
REO (Real Estate Owned): All real estate directly owned by a lender,
including real estate taken to satisfy a debt. Includes real estate acquired by
lenders through foreclosure; or in settlement of any other obligation to the
Real Property: (1) Land and anything permanently affixed to the land,
such as buildings, fences, and those things attached to the buildings, such as
light fixtures, plumbing and heating fixtures, or other items which would be
personal property if not attached. (2) May refer to rights in real property as
well as the property itself.
Recapture: That portion of the gain from the sale of real estate that
is taxed at ordinary income tax rates. Calculated as the difference between the
accelerated depreciation taken and the straightline depreciation that would
have been allowed.
Recourse: The right of a lender or holder of a note secured by a
mortgage to look to the personal assets of the borrower or endorser for payment
should, not just to the property.
Rehab: A building undergoing extensive renovation in order to cure
obsolescence. Some rehab projects are so extensive that tenants may not be in
the building during the work period.
Renewal Option: The right of a tenant to renew (i.e., extend the term
of) a lease for a stated period of time and rent at an amount that can be
Rent: Consideration paid for the occupancy and use of real property. A
general term covering any consideration (not only money).
Rent Commencement Date: The date on which a tenant begins paying rent.
Depending upon the nature of the marketplace, it may coincide with the lease
commencement date or it maybe several months after. It will never begin before
the lease commencement date.
Rentable Square Feet: Usable square feet plus a percentage (the core
factor) of the common areas on the floor, including hallways, bathrooms and
telephone closets. (And sometimes main lobbies.) Rentable square footage is the
number of square feet on which a tenants rent is based.
Rentable Usable Ratio: The number resulting from dividing the Total
Rentable Area in a building by the Usable Area. The inverse of this ratio
describes the proportion of space that an occupant can expect to utilize.
Rental Concession: See Abatement."
Rent-Up Period: The period of time following construction of a new
building when tenants are actively sought and the project is approaching
Right Of First Refusal: See "First Refusal Right."
Running With The Land: This term is generally synonymous with and
usually used in reference with easements and covenants. It also means passing
with the transfer of the land. Back to top
- S -
Sale-Leaseback: A financing arrangement in which a property owner sells
all or part of the property to an investor and then leases it back. Although
the lease actually follows the sale, both are agreed to as part of the same
Second Mortgage: A mortgage that ranks after a first mortgage in
priority. Properties may have two, three, or more mortgages, deeds of trust, or
land contracts as liens at the same time. Legal priority determines the
designation first, second, third, etc.
Secondary Space: Space which has been previously occupied and becomes
available for lease. Includes both relet and sublet space.
Security Deposit: Generally, a deposit of money by a tenant with a
landlord to secure performance of a lease.
Seisen (Seizen): The term originally referred to the completion of
feudal investiture by which a tenant was admitted into the field to render
services to the lord or proprietor. Today it has come to mean possession under
a legal right (usually a fee interest).
Setback: The distance from a lot line or other reference point, within
which no structure may be located.
Setback Ordinance: Part of a zoning ordinance that regulates the
distance from the lot line to the point where improvements may be
Site Analysis: The study of a specified parcel of land (and the
surrounding area) to determine its suitability for a specific use.
Site Development: All improvements made to a site before a building may
be constructed, such as grading, utility installation, etc.
Site Plan: A detailed plan, to scale, depicting development of a parcel
of land and containing all information required by the zoning ordinance.
Slab: The exposed wearing surface laid over the structural support
beams of a building.
Soft Dollars: That portion of equity investment that may be
tax-deductible in the first year. See also "Hard Dollars." Space
Plan: Sometimes called the preliminary plan. A graphic representation of a
tenants office space requirements, showing wall and door locations, room
sizes, and some furniture layouts.
Special Assessment: Any special charge levied against real property for
public improvements (e.g., sidewalks, sewers, etc.) that benefit the assessed
Specific Performance: A lawsuit in which the court compels one of the
parties to perform or carry out the provisions of a contract into which he has
Speculative Space: Any prime space that has not been leased to a tenant
prior to commencing construction on a new building.
Step-Up Lease (Graded Lease): A lease calling for set increases in rent
at set intervals.
Straight Lease (Flat Lease): A lease calling for the same amount of
rent to be paid periodically (usually monthly) for the entire term of the
Strip Center: Any shopping area, generally with common parking,
comprised of a row of stores.
Subcontractor: One who works under a general contractor;often a
specialist, such as an electrical contractor, cement contractor, etc.
Subdivision Plat: A detailed drawing, to scale, depicting division of a
parcel of land into two or more lots and containing engineering considerations
and other information required.
Subordination Agreement: An agreement by which the priority of a mortgage lender
is relinquished in favor of that of a lender that would otherwise he junior in
Surety: One who voluntarily binds himself to be obligated for the debt
or obligation of another. A common example is the co-maker of a note. Surety
differs from guarantor, although the terms are commonly (and mistakenly) used
Surface Rights: The rights (i.e., easements) to use the surface of
land, including the right to drill or mine through the surface when subsurface
rights are involved.
Survey: The measurement of the boundaries of a parcel of land, its area
and sometimes its topography. Back to top
- T -
Taking: A common synonym for condemnation or eminent domain.
Tax Base: Assessed valuation of real property, which is multiplied by
the tax rate to determine the amount of tax due. Tax Lien: (1) A lien for
nonpayment of property taxes. Attaches only to the property upon which the
taxes are unpaid. (2) A federal income tax lien. May attach to all property of
the person owning the taxes.
Tax Roll: A list containing the descriptions of all parcels in the
county, the names of the owners (or those receiving the tax bill), assessed
values and tax amounts.
Tenant: (1) A holder of property under a lease. (2) Originally, one who
had the right to possession, irrespective of the title interest.
Tenant At Will: One who holds possession of premises by permission of
the owner or landlord, but without agreement for a fixed term.
Tenant Improvements: Improvements to land or buildings to meet the
needs of tenants. May be new improvements or remodeling, and may be paid for by
the landlord, the tenant, or shared. See also "Leasehold
"Time Is Of The Essence": Clause used in contracts to bind
one party to performance at or by a specified time in order to bind the other
party to performance.
Title: The means whereby one has just and full possession of real
Title Insurance: Insurance against loss resulting from defects of title
to a specifically described parcel of real property. Defects may run to the fee
(i.e., chain of title) or to encumbrances.
Title Search: A review of all recorded documents affecting a specific
piece of property to determine the present condition of title.
Total Inventory: Total square footage of rentable office or industrial
space, vacant and occupied, ready for tenant finish. Includes owner-occupied
Trade Fixtures: Personal property used in a business and attached to a
structure, but removable upon sale because it is deemed to be part of the
business, not of the real estate.
Triple Net (NNN) Rent: Rent stipulated in a lease in which the tenant
agrees to pay a share of the landlords operating expenses or real estate
taxes for the building proportionate to the amount of space it occupies. See
also "Full Service Rent."
Turn Key Project: A project in which the developer is responsible for
the total completion of a building (including interior design and construction)
or demised premises to the customized requirements of a future owner or
tenant. Back to top
- U -
Under Construction: Planned buildings for which construction has
started but have not yet been granted a Certificate of Occupancy. Planned
buildings are not included.
Under Contract: A property for which a purchase offer has been accepted
by the seller is said to be "under contract." Generally, the
prospective buyer is given a certain period of time in which to perform
feasibility studies and finalize financing arrangements. During the time, the
seller cannot entertain offers from other buyers unless the purchase contract
is allowed to expire without going to closing.
Unencumbered: Describes title to property that is free of liens and any
other encumbrances. Free and clear.
Unimproved Land: Most commonly refers to land without buildings; it can
also mean land in its natural state. See also: "Raw Land."
Use: Specific purpose for which a parcel of land or a building is
designed, arranged, intended, occupied or maintained. Back to
- V -
Vacancy Factor: The amount of gross revenue lost because of vacant
space; an allowance item on proforma income statements, usually calculated as a
percentage of gross revenue.
Vacancy Rate: A measurement expressed as a percentage of the total
amount of available space compared to the total inventory of space. Computed by
multiplying vacant space times 1OO and divided by total inventory.
Vacant Space: Existing space which is currently being marketed for sale
or lease, excluding sublet space.
Variance: A permit that grants a property owner relief from certain
provisions of a zoning ordinance when, because of the particular physical
surroundings, shape or orographical condition of the property, compliance would
result in a particular hardship or practical difficulty which would deprive the
owner of the reasonable use of the land or building involved.
Vendee: Purchaser or "buyer," generally used in real property
Vendor: The person who transfers property by sale. Another word for
"seller." Commonly used in land contract sales. Back
- W -
Warranty: A binding promise made at the time of a sale whereby the
seller gives the buyer certain assurances as to the condition of the
Wear and Tear: The deterioration or loss in value caused by the
tenants normal and reasonable use. In many leases the tenant is not
responsible for "normal wear and tear." See also "Normal Wear
Weighted Average Rental Rates: Rental rates averaged to the amount of
space available in each building per market area.
Workletter: The standard building items that the landlord contributes
las part of the tenant improvements. Examples of standard building items are:
doors, partitions, lights, floor covering, telephone outlets, etc. The
Workletter may specify the quantity and quality of the materials to be used and
often carries a dollar value.
Working Drawings: The set of plans for a project that, in combination
with a set of specifications, comprise the contract documents indicating the
exact manner in which a project should be built.
Workout: The process by which a borrower attempts to negotiate with a
lender to restructure the borrowers debt rather than go through
foreclosure proceedings. Back to top
- Z -
Zoning: A method of regulating use of real estate by dividing a city or
other area into zones and designating which uses may be permitted for land in
Zoning Ordinance: The set of laws and regulations, generally at the
city or county level, that control the use of land and construction of
improvements in a given area or zone. Back to top