Commercial Real Estate Terminology

A & D Loan: Acquisition and Development Loan created to fund both the acquisition of the land and the development of the project.

Absorption: move-ins versus move-outs over a given period of time in a given market (absorption rate is absorption expressed as a percentage or ratio)

ADA: Americans with Disabilities Act. ADA is a federal law that requires certain types of developments and adjustments to residential and commercial buildings and businesses to provide services for the physically impaired and it prohibits discrimination on the basis of disabilities.

ALTA: American Land Title Association

Anchor: the tenant who is the main draw or one of the main draws to the retail center, building or mixed-use development

Appurtenance: benefit to a property, special characteristic such as an easement that may add value or usefulness to the property itself

Assignee: party who is receiving the transferred interest in the lease

Assignment: transfer of interest in a lease, the lease is assigned in whole to a new tenant; the landlord can also assign his/her interest in the lease

Assignor: party assigning or transferring his/her interest in the lease

Blanketing: negotiating tactic whereby one party puts all demands up front

Boundary Survey: Detailed drawing of a property depicting boundaries, dimensions, easements, rights of way, encroachments and structures on a property.

Bracketing: negotiating tactic whereby the negotiator separates the issues to be negotiated in order of priority

BTS: Build To Suit opportunity for financing; build-to-suit (BTS) is basically a form of seller financing whereby the seller finances the land and/or the building and builds to suit the needs of the tenant. A BTS is considered a non-traditional source of financing

Build-to-Suit: space or property built to suit the needs of a specific tenant, pre-leased or sold before construction

Bulk Warehouse Space: industrial type space with dock high and maybe drive-in doors, higher ceiling heights than 10 or 12 feet, under 10% typical office build out

BY: Base Year

CAD: Computer Aided Design development software. A CAD system is used to actually design and draw scale site plans and architectural plans for a project and automate the process.

CAM (Common Area Maintenance): all those operating expenses incurred to maintain the common areas of the shopping center office building or group of buildings

Cash Flow: Cash Flow is the remaining cash after all expenses and debt services are paid.
Gross Income (Gross Revenue) 200,000
Less: Losses or bad debts2,000
Plus: Miscellaneous Income 1,000
Equal: Effective Gross Income 199,000
Less: Operating Expenses 70,000
Less: Replacement Reserve10,000
Equal: Net Operating Income119,000
Less: Interest 75,000
Less: Principal Payment 8,250
Equal: Cash Flow35,750

CBD: Central Business District

Class "A" Building: Prime quality office space typically high quality build out and finish, higher relative maintenance, high level of amenities (covered parking, interior finish, retail services, etc., typically full service

Class "B" Building: good quality office space, lower level of amenities than Class "A", typically full service

CO: Certificate of Occupancy

Commercial Broker Lien Laws: If enacted in the state where the property is located, a commercial brokers lien law can provide a means for a broker to collect a valid commission due on a commercial transaction by allowing the broker to file a lien on commercial real estate in order to get the commission. Usually the broker is the only one who can file the lien, the licensee under the broker cannot file the lien. If it is a commercial lien law, this type of law usually does not allow the broker to file liens on personal property. If it is a commercial lien law, this type of law usually does not apply to single-family residences.

Consideration: something of value to induce another party to enter into an agreement; in order for an option to be valid, value must be exchanged; the consideration in an option is the option money (or it could be a promissory note); the consideration in a lease is the promise to pay rent for the promise to provide possession of the property

Contingency: any condition or circumstance, including approvals or situations, that must be satisfied before the purchaser is obligated to purchase the contract property

Deed Restrictions: Those encumbrances that limit the use of land in some way as stipulated in the deed or other recorded instrument, such as a restriction against the construction and operation of a gasoline station on the property for 20 years.

Developer: A developer purchases land and improved it with infrastructure such as utilities and roads and then sells all or parts of it to users or builders. A developer also subdivides property.

Distribution Space: industrial type space, with dock high and/or drive-in doors, typically between 10% -30% maximum office build out with medium high ceiling heights, above 12 feet up to 120 feet

Easement: One party has rights to use the property of another in some way, thereby encumbering one property and benefiting another

EIS: Environmental Impact Study or Environmental Impact Statement

Encumbrance: An encumbrance is a burden on the real estate. Encumbrances usually benefit another party. Encumbrances include easements, mortgages and taxes due

Epicenter: Type of retail development that hosts a variety of online and catalog merchants under one roof; the customer is able to see and test the merchandise and is able to take advantage of instant, online purchasing technology on-site and the order is then shipped.

Exceptions to Title: Those conditions or encumbrances on property that will not be covered by a title insurance policy

Exclusive Agency Listing: the broker has the exclusive right to market the property with the exception of the owner, who may continue to market and sell the property without liability for a commission unless the broker locates the buyer. If the owner finds a suitable buyer, the broker does not have the right to a commission

Exclusive Right to Sell Listing: most desirable type of listing is the exclusive right to sell listing because it offers the most protection for the listing broker. If the owner or the broker finds a suitable buyer, the broker has the right to a commission

FAR: Floor Area Ratio; total square footage of building divided by total square footage of land area; Example: A building is 100 feet x 120 feet (total of 12,000 sf)
The tract of land it occupies is 200 feet x 200 feet (40,000 sf)
12,000 sf/40,000 = .30 The building covers 30 % of the land area so the FAR is .30 or 30 %

Feasibility Analysis: a study as to whether a project can be realistically completed. Feasibility of obtaining permits and approvals and verifying development density are some of the considerations

Financial Analysis: A study of the financial feasibility of a project to determine if the project will be profitable based on estimates of revenue and costs in a pro forma

FIRM: Flood Insurance Rate Map

Flood Plain: An area of land that is prone to flood conditions which has been designated on a Flood Insurance Rate Map (FIRM)

Forbearance: negotiating tactic involving putting off the decision for no apparent reason

GIM: Gross Income Multiplier: The formula for the GIM is Value (or Sales Price) divided by Gross Income GRM = Sales price / Annual Gross Income

GIS: Geographic Information System that is an integrated software package that relates real time demographic data to geographic data drawn from satellites

GRM: Gross Rent Multiplier, GRM does not cover expenses
GRM = Sales price / Annual Gross Rents

Hard costs: those expenses that are direct costs that physically go into construction such as fill material, grading, and land costs

Impact fees: fees to be charged objectively based on the specific impact a development will have on specific public services. Impact fees are intended to give local governments the ability to provide and maintain certain public services at a level necessary to support current and future growth requirements. Counties and local governments usually charge these fees but they can also be state imposed. In Georgia, DIFA (Development Impact Fee Act) empowered local governments to design and impose their own impact fees. The basis of charging impact fees is predicated upon the theory that the new development should pay a fee based upon the impact that development will have on the existing services it will be using.

Infrastructure: infrastructure is what is needed to build a building on a tract of land. Infrastructure includes utilities, drainage systems, curb and gutter, and paving of roads

Ingress Egress Easement: The right to go over, upon and across another partyÕs property through rights of an easement. The easement benefits one party and burdens the property with the easement encumbering it

Lifestyle Center: upscale, open-air retail center with a "Main Street," layout so customers can park directly in front of the merchant; include outdoor cafˇÕs, full service restaurants, book retailer, other national tenants often seen in enclosed malls; hosts family events and is located next to or near apartments and office buildings

LOI: LOI stands for letter of Intent, which is merely a letter expressing the purchaserÕs desire to purchase the subject property on the stated basic terms. A letter of intent can become a contract if not written properly

Macro Economics: refers to the big picture and the influence factors have as a whole and their long-term impact. Examples of macro factors include Federal Reserve policies as they affect the availability of money and the balance of the national budget

Marketing: an overall plan to make prospects aware of the product. In real estate marketing requires matching buyers and sellers. Advertising is one aspect of the marketing plan and targeting the market is another part of the marketing plan. The first step is to know the product

Micro Economics: refers to issues on a smaller scale and more local level. Micro economic factors include local tax budgets, zoning codes, and the closing of a local plant

Neighborhood Center: shopping center typically anchored by a grocery store or supermarket and other small shops, some drug stores, appeals to the local customer base

Office Retail: office building with a retail shop or restaurant typically on street level; street-level retail

Omnicenter:

Open Listing: loose type of listing that does not offer any exclusivity. The owner could have an infinite number of open listings on the property. Because there is no exclusivity, there is no real protection for the broker in an open listing

OPM: Other PeoplesÕ Money

Option: An option gives one party the right to purchase the sellerÕs property at a given price during a given period of time, provided consideration is exchanged for this right

Optionee: The Optionee is the buyer in an option. The Optionee has the right to purchase the optioned property at a given price during a given period of time

Optionor: The seller grants an option to a potential buyer in an option. The seller, or owner, is the Optionor

Outlet Mall: ManufacturerÕs outlet retail center

Percentage Lease: also called a retail lease or shopping center lease; rental includes minimum base rent and a percentage of sales (gross sales, profit, etc.) is charged to the tenant along with CAM charges

Pre-leased Space: space that is under construction that is leased, but not yet occupied

PUD: Planned Unit Development

PV: Present Value

Recorded Plat: Once a property is surveyed and a detailed site plan is submitted to the local authorities for approval, it is usually recorded to indicate approval for future reference

Regional Mall and Super-Regional Mall: enclosed shopping center with a trade base drawn from several miles. Super-Regional denotes a larger size, mega-mall drawing from a larger distance

REIT: Real Estate Investment Trusts; basically a collection of performing properties, such as apartments, shopping centers, hotels and office buildings, which are being managed by professional property managers, whereby shares of stock are issued on the REIT as a whole

Rentable Square Feet: useable space plus all that space shared among tenant, useable plus common areas

Reversal: negotiating tactic whereby one party recognizes the viewpoint of the other party and uses it to understand the situation and gain trust to negotiate a better deal

Rezoning: To change the existing zoning designation from one designation allowing certain uses to another zoning designations allowing other types or variations of uses.

ROFR: Right of First Refusal

ROW: Right of Way

RRM: Renegotiated Rate Mortgage

Sale Leaseback: A sale-leaseback is often used as a means of obtaining funding for future expansion needs. In a sale leaseback the owner of the property sells the property and in return leases it back on a long-term basis. The following describes a sales lease back situation: Owner A sells to Buyer B, who then leases the property back to Seller A.

SBS: Sick Building Syndrome

Service Space: type of industrial space, flex-space or business park space with drive-in and/or dock high doors, could be between 30% -100% maximum office build out

Set Aside: negotiating tactic to set aside certain large issues and discussing other items of negotiations so the parties gain a sense of momentum

Soft costs: are those costs that are indirectly incurred. Soft costs do not actually, physically go toward construction. Overhead such as the project engineers salary, the administrative costs, legal fees and architect fees are soft costs

Speculative Space: space, which is not built for the owner, nor built-to-suits

Speculator: an investor in land who does not add value to the land; the speculator is a risk taker and gambles that the property is or will be worth more than he/she is paying for the property

Subdivider: a party who breaks a larger tract into smaller tracts; the subdivider does not necessarily add any infrastructure but by parceling the property, he/she may increase the total value

Sublessee: new tenant, who subleases from the original tenant and pays the original tenant, could lease all or a portion of space, also call subtenant

Sublessor: original tenant in a lease who elects to lease out his/her interest in the lease to a third party (sublessee), the sublessor still pays the landlord rental

Target Market: a select group of candidates most likely to buy the product to which the marketing should be directed. These candidates are potential purchasers for a listing and they share the desire for certain characteristics for a property such as traffic count and access for a retail site.

Tenant mix: refers to the combination of tenants in a center so that the best combination of types of tenants brings in the most business to the center. Tenant mix refers to tenants, not to the products they sell or their hours of operation. However, the landlord ideally wants all the tenants open for business at the same times.

TICAM: Taxes, Insurance and Common Area Maintenance

Title Policy: An insurance policy that insures that the condition of title is good, however certain exclusions to the title will not be insured. There is ownerÕs title insurance and lenderÕs title insurance

Topo: a survey depicting the surface elevations of a property by the use of contour lines. A topo is useful in estimating costs of developing a property, such as the grading and cutting costs

Trade Off: negotiating tactic based on the principle to always ask for something in return when the other party makes a demand

Triple-Net Lease: lease whereby the tenant is expected to directly pay all those expenses associated with ownership of the land, tenant pays taxes, insurance and maintenance (maintenance may include utilities, repairs and other operating expenses)

UCC: Uniform Commercial Code

Unanchored Strip Center: small strip of shops or retail, no anchor, may be as small as 5,000 square feet

Useable Square Feet: space actually available for personnel, furniture and equipment, space the tenant may physically use

User: a party who purchases land for its own use, such as a fast food company who plans to construct and operate its own facility on the property; a user does not want to purchase a property unless it can be used for the intended purpose

Vacancy: vacant space expressed as a percentage of the total space available, in a given market, at a given time

Vacant Space: the square footage of space actually vacant at a given period of time

Variance: an exception to a portion of the existing zoning on a property, such as reducing a setback to be less stringent

Zoning Designations: Those stipulations the city or county government imposes to see that the proposed land use is consistent with the planned community development. These codes, and the requirement vary from state to state, county to county and municipality to municipality