Real Estate Industry Terminology

ADA (Americans with Disabilities Act)

U.S. civil rights law requiring properties accessible to people with disabilities; impacts design, construction, renovations, leasing, and operations.

- Is the lobby ADA-compliant for wheelchair access? - The TI budget includes ADA restroom upgrades. - The landlord added ADA signage to avoid compliance violations.

ALTA Survey

A detailed land title survey (per ALTA/NSPS standards) used in commercial deals to map boundaries, easements, encroachments, and improvements for lenders and title insurers.

- The lender conditioned closing on a clean ALTA survey. - The survey revealed a utility easement across the rear lot. - Title will delete the survey exception upon receipt of a current ALTA.

Amortization

The schedule by which loan principal is repaid over time, typically via equal periodic payments that include principal and interest.

- It’s a 30-year amortization with a 7-year term. - Interest-only periods delay amortization. - A longer amortization lowers the annual debt service.

Appraisal

An independent, USPAP-compliant valuation by a licensed appraiser used by lenders, buyers, and sellers to estimate market value.

- The appraisal came in under contract price. - We ordered a rush appraisal to meet the closing date. - The lender required an MAI appraiser for this asset.

ARV (After-Repair Value)

The estimated market value of a property after planned renovations are completed, commonly used by flippers and value-add investors.

- The ARV supports the refinance take-out. - Our rehab budget targets a $500k ARV. - Lenders cap the loan based on ARV and LTV.

Bridge Loan

Short-term, often interest-only financing used to acquire or stabilize a property until permanent financing or a sale occurs.

- We used a 12-month bridge loan during lease-up. - The bridge lender funded 75% of purchase plus capex. - Bridge-to-agency execution requires hitting occupancy thresholds.

Build-to-Suit

A development constructed to a tenant’s specifications, typically under a long-term lease, often single-tenant.

- The pharmacy did a 15-year NNN build-to-suit. - Rent is higher because it’s a bespoke build-to-suit. - The developer pre-leased via an LOI before breaking ground.

CAM (Common Area Maintenance)

Operating expenses for shared areas (e.g., halls, parking, landscaping) that landlords recover from tenants, typically in retail/office.

- CAM reconciliations went out in January. - The lease caps controllable CAM at 5% annually. - Trash and snow removal are billed as CAM.

Cap Rate (Capitalization Rate)

A yield metric equal to NOI divided by purchase price or value; used to compare risk/return across properties.

- It traded at a 6% cap. - We’re targeting a 100 bps cap rate expansion on exit. - Comps suggest core industrial is at sub-5 caps.

Cash-on-Cash Return

Annual pre-tax cash flow divided by total equity invested; measures cash yield to equity investors.

- Year-1 CoC is projected at 8%. - Cash-out refi improved our cash-on-cash return. - High CoC may mask future capex risk.

CMA (Comparative Market Analysis)

An agent’s analysis of similar recent sales, active listings, and market trends to estimate a property’s likely sale price.

- The CMA supports our list price. - We adjusted the CMA for condition and square footage. - The seller requested an updated CMA after price reductions nearby.

Contingency

A contract clause making the deal dependent on certain conditions (e.g., financing, appraisal, inspections, zoning).

- We waived the appraisal contingency to win the bid. - The PSA includes a 30-day due diligence contingency. - The financing contingency expires Friday.

DSCR (Debt Service Coverage Ratio)

NOI divided by annual debt service; measures cash flow coverage for loan payments, used by lenders to size loans.

- The lender needs a 1.25x DSCR. - DSCR falls during lease-up before stabilizing. - Higher rates compressed our DSCR below covenant.

Due Diligence

The investigation period to verify physical, financial, legal, and market facts before closing.

- Our DD checklist includes leases, estoppels, and environmental reports. - We extended due diligence for zoning confirmation. - The Phase I flagged a RECs item for further testing.

Earnest Money

A good-faith deposit paid by the buyer and typically held in escrow, applicable to the purchase price or forfeited upon default.

- The seller wants 3% earnest money hard after DD. - We negotiated refundable earnest money until financing approval. - The escrow agent released the deposit at closing.

Easement

A nonpossessory legal right to use another’s land for a specific purpose (e.g., access, utilities, drainage).

- The driveway easement benefits the rear parcel. - We need an easement agreement from the neighbor for the water line. - Title shows a blanket utility easement along the frontage.

Estoppel Certificate

A tenant’s written confirmation of key lease terms, rent, and status, relied on by lenders and buyers.

- The lender requires estoppels from 75% of tenants. - The estoppel shows no landlord defaults. - We discovered free rent via the estoppel review.

FIRPTA (Foreign Investment in Real Property Tax Act)

U.S. law requiring tax withholding on dispositions of U.S. real property interests by foreign sellers, subject to exemptions and reduced rates.

- The buyer must handle FIRPTA withholding at closing. - The seller provided a non-foreign affidavit to avoid FIRPTA. - Counsel advised a reduced FIRPTA rate under the exemption.

Force Majeure

A contract clause excusing delays or nonperformance due to uncontrollable events (e.g., natural disasters, strikes, government orders).

- Construction delays were covered by force majeure. - The lease’s force majeure excludes rent obligations. - We added pandemics to the force majeure clause.

Gross Lease

A lease where the landlord pays most operating expenses, and the tenant pays a single gross rent (contrast with NNN).

- This downtown office is on a full-service gross lease. - The renewal shifted from gross to modified gross. - Gross rent includes janitorial and utilities.

Ground Lease

A long-term lease of land where the tenant builds and operates improvements, often reverting to the landowner at lease end.

- The developer secured a 75-year ground lease. - Ground rent escalates with CPI. - The ground lease requires lender consent to transfer.

Hazard Insurance

Property insurance covering damage from perils like fire, wind, or theft; often required by lenders (a.k.a. HOI in residential).

- The lender requires replacement-cost hazard insurance. - Flood coverage is separate from standard hazard policies. - Premiums rose after last year’s storms.

IRR (Internal Rate of Return)

The discount rate that sets an investment’s net present value to zero; summarizes a project’s total return profile over time.

- The deal underwrites to a 16% IRR. - Extending the hold period reduced the IRR. - Timing of cash flows drives IRR sensitivity.

Leaseback (Sale-Leaseback)

A transaction where the owner sells the property and simultaneously leases it back from the buyer, unlocking capital while retaining occupancy.

- The manufacturer did a sale-leaseback to fund expansion. - Investors like long-term NNN leasebacks with strong credits. - The cap rate reflected the tenant’s credit quality.

Lien

A legal claim or encumbrance on property as security for a debt or obligation (e.g., mortgage, tax lien, mechanic’s lien).

- Title shows a prior mortgage lien to be released at closing. - A mechanic’s lien was filed by the contractor. - The county recorded a tax lien for unpaid taxes.

Loan-to-Value (LTV)

The ratio of loan amount to property value or purchase price; lenders cap LTV to manage risk.

- The max LTV is 70% on this bridge loan. - Appraisal came in low, pushing LTV above the lender’s limit. - Post-renovation value drops the LTV at refinance.

LOI (Letter of Intent)

A non-binding document outlining key business terms (price, timing, contingencies) prior to a definitive contract.

- The LOI sets a 30-day exclusivity period. - We negotiated TI and free rent in the LOI. - The LOI is non-binding except for confidentiality.

Master Lease

A lease covering all or a significant portion of a property, often used in creative financing or to stabilize income for a sale or refinance.

- The buyer structured a master lease to boost in-place NOI. - The master tenant subleases individual units. - Lenders scrutinize master lease terms for credit quality.

Mezzanine Debt

Subordinated financing sitting between senior debt and equity, often secured by a pledge of ownership interests rather than the property.

- We layered in mezz to reach 85% LTC. - Mezzanine carries a higher interest rate than senior debt. - The intercreditor agreement governs mezz rights.

MLS (Multiple Listing Service)

A broker-run database of property listings that facilitates sharing of information and compensation among agents.

- The listing went live on the MLS today. - We pulled comps from the MLS. - Off-market deals never hit the MLS.

Net Absorption

The net change in occupied space in a market over a period (space leased minus space vacated), indicating demand strength.

- Industrial net absorption hit a record last quarter. - Negative net absorption signals softening demand. - New supply outpaced absorption this year.

NNN Lease (Triple Net)

A lease where the tenant pays property taxes, insurance, and maintenance, in addition to base rent; common in single-tenant retail.

- The pharmacy is on a 20-year NNN lease. - Investors like NNN for predictable cash flows. - Roof and structure responsibilities vary by NNN terms.

NOI (Net Operating Income)

Income from operations after operating expenses but before debt service, capital items, and taxes; core metric for valuation and lending.

- We grew NOI by reducing utility costs. - Cap rate times NOI estimates value. - Lenders underwrite stabilized NOI, not pro forma hype.

Opportunity Zone

A federally designated census tract that offers tax incentives for qualifying equity investments to spur economic development.

- OZ equity seeks a 10-year hold for tax benefits. - We formed a QOF to invest in the OZ project. - Timing is critical to meet OZ compliance deadlines.

Pro Forma

A forward-looking financial projection of income, expenses, and returns, based on assumptions about rent, occupancy, and capex.

- The pro forma assumes 5% annual rent growth. - Stress-test the pro forma for rate and vacancy shocks. - Investors asked for a five-year pro forma with IRR.

PSA (Purchase and Sale Agreement)

The definitive contract for buying and selling property, detailing price, deposits, contingencies, representations, and closing terms.

- The PSA provides a 30-day inspection period. - We negotiated a cap on seller’s liability in the PSA. - Assignability is restricted under the PSA.

Quiet Enjoyment

A tenant’s right to possess and use the premises without interference, typically guaranteed in leases.

- Construction hours were limited to preserve quiet enjoyment. - The SNDA protects tenant’s quiet enjoyment if the lender forecloses. - Constant disruptions can breach quiet enjoyment.

REIT (Real Estate Investment Trust)

A company that owns or finances income-producing real estate and receives pass-through tax treatment if it meets IRS requirements.

- The healthcare REIT raised equity for acquisitions. - REITs must distribute most taxable income as dividends. - We benchmark private deals against public REIT cap rates.

REO (Real Estate Owned)

Property acquired by a lender after an unsuccessful foreclosure sale; typically sold as-is.

- The bank’s REO portfolio includes several homes. - We negotiated repairs on the REO property. - REO timelines can be slower due to internal approvals.

Right of First Refusal (ROFR)

A contractual right allowing a party to match a third-party offer before the owner can sell or lease to that third-party.

- The tenant has ROFR on any sale of the building. - ROFR delayed marketing until the holder waived. - We priced the deal with the ROFR risk in mind.

SNDA (Subordination, Non-Disturbance, and Attornment)

A three-part agreement among lender, landlord, and tenant: tenant subordinates to the mortgage, lender agrees not to disturb the lease if the tenant isn’t in default, and tenant agrees to attorn to a new owner.

- The lender required SNDAs from major tenants. - The SNDA preserves tenant rights after foreclosure. - Legal reviewed the SNDA form attached to the lease.

Tax Abatement

A reduction or exemption of property taxes for a set period to incentivize development or rehab.

- The city offered a 10-year tax abatement for affordable units. - Underwriting reflects abatement roll-off in year 11. - Abatement approval requires meeting job-creation targets.

Tenant Improvements (TIs)

Interior build-out work to customize space for a tenant; may be funded via a TI allowance from the landlord.

- The tenant requested a $40 psf TI allowance. - TIs include new demising walls and HVAC. - TI overages are the tenant’s responsibility.

Title Insurance

Insurance that protects owners and lenders against losses from defects in title not found in the public record or missed during title search.

- The lender’s policy is required at closing. - We purchased endorsements for survey coverage. - A title claim arose from an undisclosed lien.

Underwriting

The process of analyzing risk, cash flows, collateral, and borrower/tenant credit to determine pricing, loan size, or investment viability.

- The lender is underwriting to a 1.30x DSCR. - Our underwriting uses conservative rent growth. - Credit underwriting flagged tenant concentration risk.

Vacancy Rate

The percentage of rentable space unoccupied in a property or market; a key indicator of supply/demand and underwriting risk.

- Submarket vacancy fell to 4%. - Our pro forma assumes 8% stabilized vacancy. - Rising vacancy pressured effective rents.

Waterfall (Distribution Waterfall)

The priority structure dictating how cash flows and profits are distributed among equity investors (e.g., preferred return, catch-up, promotes).

- The GP earns a 20% promote above a 15% IRR hurdle. - We added a catch-up tier to the waterfall. - The waterfall splits differ between ongoing cash and sale proceeds.

Xeriscaping

Landscape design that minimizes irrigation needs through drought-tolerant plants and efficient watering, reducing operating costs.

- Xeriscaping lowered CAM expenses. - The HOA encourages xeriscape conversions. - Drought rules prompted us to replace turf with xeriscaping.

Yield Maintenance

A prepayment penalty designed to make the lender economically whole by approximating the present value of lost interest.

- CMBS debt carries steep yield maintenance. - We timed the sale to avoid yield maintenance costs. - The loan allows defeasance as an alternative to yield maintenance.

Zoning

Local land-use regulations governing permitted uses, density, setbacks, height, parking, and more; determines what can be built and operated.

- The parcel is zoned C-2 for retail. - We applied for a zoning variance for height. - A rezoning could unlock higher FAR and value.