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Real Estate Glossary…

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Abatement: Often referred to as free rent or early occupancy and may occur outside or in addition to the primary term of the lease

Above building standard: Upgraded finishes and specialized designs necessary to accommodate a tenant’s requirements

Absorption rate: The rate at which rentable space is filled. Gross absorption is a measure of the total square feet leased over a specified period with no consideration given to space vacated in the same geographic area during the same time period. Net absorption is equal to the amount occupied at the end of a period minus the amount occupied at the beginning of a period and takes into consideration space vacated during the period.

Ad valorem: Meaning “according to value,” this is a tax imposed on the value of property that is typically based on the local government’s valuation of the property.

Adjusted funds from operations (AFFO): A measure of REIT performance or ability to pay dividends used by many analysts with concerns about quality of earnings as measured by funds from operations (FFO). The most common adjustment to FFO is an estimate of certain recurring capital expenditures needed to keep the property portfolio competitive in its marketplace.

Administrative fee: Usually stated as a percentage of assets under management or as a fixed annual dollar amount

Advances: Payments made by the servicer when the borrower fails to make a payment

Adviser: A broker, consultant or investment banker who represents an owner in a transaction. Advisers may be paid a retainer and/or a performance fee upon the close of a financing or sales transaction.

Aggregation risk: Risk associated with warehousing mortgages during the pooling process for future securitization

Alternative or specialty investments: Property types that are not considered conventional institutional-grade real estate investments. Examples include congregate care facilities, self-storage facilities, mobile homes, timber, agriculture and parking lots.

Amortization: The liquidation of a financial debt through regular periodic installment payments. For tax purposes, the periodic deduction of capitalized expenses such as organization costs

Anchor: The tenant that serves as the predominant draw to a commercial property, usually the largest tenant in a shopping center

Annual percentage rate (APR): The actual cost of borrowing money. It may be higher than the note rate because it represents full disclosure of the interest rate, loan origination fees, loan discount points and other credit costs paid to the lender.

Appraisal: An estimate of a property’s fair market value that is typically based on replacement cost, discounted cash flow analysis and/or comparable sales price

Appreciation: An increase in the value or price of an asset

Appreciation return: The portion of the total return generated by the change in the value of the real estate assets during the current quarter, as measured by both appraisals and sales of assets

Arbitrage: Buying securities in one market and then selling them immediately in another market to make a profit on the price discrepancy

As-is condition: The acceptance by the tenant of the existing condition of the premises at the time a lease is consummated, including any physical defects

Assessment: A fee imposed on property, usually to pay for public improvements such as water, sewers, streets, improvement districts, etc.

Asset management: The various disciplines involved with managing real property assets from the time of investment through the time of disposition, including acquisition, management, leasing, operational/financial reporting, appraisals, audits, market review and asset disposition plans

Asset management fee: A fee charged to investors based on the amount invested into real estate assets for the fund or account.

Asset turnover: Calculated as total revenues for the trailing 12 months divided by the average total assets

Assets under management: The current market value of real estate assets for which a manager has investment and asset management responsibilities

Assignee name: The individual or entity to which the obligations of a lease, mortgage or other contract have been transferred

Assignment: A transfer of the lessee’s entire stake in the property. It is distinguishable from a sublease where the sublessee acquires something less than the lessee’s entire interest.

Attorn: To agree to recognize a new owner of a property and to pay him/her rent.

Average common equity: Calculated by adding the common equity for the five most recent quarters and dividing by five

Average downtime: Expressed in months, the amount of time expected between the expiration of a lease and the commencement of a replacement lease under current market conditions

Average free rent: Expressed in months, the rent abatement concession expected to be granted to a tenant as part of a lease incentive under current market conditions

Average occupancy: The average occupancy rate of each of the preceding 12 months

Average total assets: Calculated by adding the total assets of a company for the five most recent quarters and dividing by five

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Balloon, or bullet, loan: A loan with a maturity that is shorter than the amortization period

Balloon risk: The risk that a borrower will not be able to make a balloon (lump sum) payment at maturity due to a lack of funding

Bankrupt: The state of an entity that is unable to repay its debts as they become due

Bankruptcy: Proceedings under federal statutes to relieve a debtor who is unable or unwilling to pay its debts. After addressing certain priorities and exemptions, the bankrupt entity’s property and other assets are distributed by the court to creditors as full satisfaction for the debt.

Base principal balance: The original mortgage amount adjusted for subsequent fundings and principal payments without regard to accrued interest or other unpaid debt

Base rent: A set amount used as a minimum rent with provisions for increasing the rent over the term of the lease

Base year: Actual taxes and operating expenses for a specified year, most often the year in which a lease commences

Basis point: 1/100 of 1 percent

Below-grade: Any structure or portion of a structure located underground or below the surface grade of the surrounding land

Beneficiary: An employee covered by an employee benefit plan

Beta: A measure of a company’s common stock price volatility relative to the market

Bid: An offer, stated as a price or spread, to buy whole loans or securities

Blind pool: A commingled fund accepting investor capital without prior specification of property assets

Book value: Also referred to as common shareholder’s equity, this is the total shareholder’s equity as of the most recent quarterly balance sheet minus preferred stock and redeemable preferred stock.

Broker: A person who acts as an intermediary between two or more parties in connection with a transaction

Buildable acres: The area of land that is available to be built on after subtracting for roads, setbacks, anticipated open spaces and areas unsuitable for construction

Building code: The various laws set forth by the ruling municipality as to the end use of a certain piece of property. They dictate the criteria for design, materials and types of improvements allowed.

Building standard plus allowance: The landlord lists, in detail, the building standard materials and costs necessary to make the premises suitable for occupancy. A negotiated allowance is then provided for the tenant to customize or upgrade materials.

Build-out: Space improvements put in place per the tenant’s specifications. Takes into consideration the amount of tenant finish allowance provided for in the lease agreement.

Build-to-suit: A method of leasing property whereby the developer/landlord builds to a tenant’s specifications

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Call date: Periodic or continuous rights given to the lender to cause payment of the total principal balance prior to the maturity date

Capital appreciation: The change in market value of a property or portfolio adjusted for capital improvements and partial sales

Capital expenditures: Investment of cash or the creation of a
liability to acquire or improve an asset, as distinguished from cash
outflows for expense items that are considered part of normal operations

Capital gain: The amount by which the net proceeds from the sale of a
capital item exceeds the book value of the asset

Capital improvements: Expenditures that arrest deterioration of
property or add new improvements and appreciably prolong its life

Capital markets: Public and private markets where businesses or
individuals can raise or borrow capital

Capitalization: The total dollar value of various securities issued
by a company

Capitalization rate: The rate at which net operating income is
discounted to determine the value of a property. It is the net operating
income divided by the sales price or value of a property expressed as a

Carrying charges: Costs incidental to property ownership that must be
absorbed by the landlord during the initial lease-up of a building and
thereafter during periods of vacancy

Cash flow: The revenue remaining after all cash expenses are paid

Cash-on-cash yield: The relationship, expressed as a percentage,
between the net cash flow of a property and the average amount of invested
capital during an operating year

Certificate of occupancy: A document presented by a local government
agency or building department certifying that a building and/or the leased
area has been satisfactorily inspected and is in a condition suitable for

Chapter 7: That portion of the federal bankruptcy code that deals
with business liquidations

Chapter 11: That portion of the federal bankruptcy code that deals
with business reorganizations

Circulation factor: Interior space required for internal office
circulation not accounted for in the net square footage

Class “A”: A real estate rating generally assigned to properties that
will generate the highest rents per square foot due to their high quality
and/or superior location

Class “B”: Good assets that most tenants would find desirable but
lack attributes that would permit owners to charge top dollar

Class “C”: Buildings that offer few amenities but are otherwise in
physically acceptable condition and provide cost-effective space to tenants
who are not particularly image-conscious

Clear-span facility: A building, most often a warehouse or parking
garage, with vertical columns on the outside edges of the structure and a
clear span between columns

Closed-end fund: A commingled fund that has a targeted range of
investor capital and a finite life

Closing: A period of time, usually less than seven days, after a
registration statement is effective and the offering commences, giving the
underwriters time to receive payment for the securities

CMBS (commercial mortgage-backed securities): Securities backed by
loans on commercial real estate

CMO (collateralized mortgage obligation): Debt obligations that are
collateralized by and have payments linked to a pool of mortgages

Co-investment: Co-investment occurs when two or more pension funds or
groups of funds share ownership of a real estate investment. In
co-investment vehicles, relative ownership is always based on the amount of
capital contributed. It also refers to an arrangement in which an investment
manager or adviser co-invests its own capital alongside the investor.

Co-investment program: An investment partnership or insurance company
separate account that enables two or more pension funds to co-invest their
capital in a single property or portfolio of properties. The primary appeal
for investors is to achieve greater diversification or invest in larger
properties typically outside the reach of small- to mid-sized tax-exempt
funds, with a greater measure of control than is afforded in typical
commingled fund offerings.

Collateral: Asset(s) pledged to a lender to secure repayment of a
loan in case of default

Commingled fund: A pooled fund vehicle that enables qualified
employee benefit plans to commingle their capital for the purpose of
achieving professional management, greater diversification or investment
positions in larger properties

Common area: For lease purposes, the areas of a building and its site
that are available for the non-exclusive use of all its tenants, e.g.,
lobbies, corridors, etc.

Common area maintenance: Rent charged to the tenant in addition to
the base rent to maintain the common areas. Examples include snow removal,
outdoor lighting, parking lot sweeping, insurance, property taxes, etc.

Comparables: Used to determine the fair market lease rate or asking
price, based on other properties with similar characteristics

Concessions: Cash or cash equivalents expended by the landlord in the
form of rental abatement, additional tenant finish allowance, moving
expenses or other monies expended to influence or persuade a tenant to sign
a lease

Condemnation: The process of taking private property, without the
consent of the owner, by a governmental agency for public use through the
power of eminent domain

Conduit: An alliance between mortgage originators and an unaffiliated
organization that acts as a funding source by regularly purchasing loans,
usually with a goal of pooling and securitizing them

Construction loan: Interim financing during the developmental phase
of a property

Construction management: The act of ensuring the various stages of
the construction process are completed in a timely and seamless fashion

Consultant: Any company or individual that provides the following
services to institutional investors: definition of real estate investment
policy; adviser/manager recommendations; analysis of existing real estate
portfolios; monitoring of and reporting on property asset, commingled fund
and portfolio performance; and review of specified property and portfolio
investment opportunities. Consultants are distinguished from investment
advisers or investment managers in that a consultant does not source or
execute transactions and does not directly manage assets.

Consumer price index (CPI): Measures inflation in relation to the
change in the price of goods and services purchased by a specified
population during a base period of time. The CPI is commonly used to
increase the base rent periodically as a means of protecting the landlord’s
rental stream against inflation or to provide a cushion for operating
expense increases for a landlord unwilling to undertake the record-keeping
necessary for operating expense escalations.

Contiguous space: Multiple suites/spaces within the same building and
on the same floor that can be combined and rented to a single tenant, or a
block of space located on multiple adjoining floors in a building

Contract documents: The complete set of design plans and
specifications for the construction of a building

Contract rent: The rental obligation, expressed in dollars, as
specified in a lease. Also known as face rent.

Convertible debt: A mortgage position that gives the lender the
option to convert to a partial or full ownership position in a property
within a specified time period

Convertible preferred stock: Preferred stock that is convertible to
common stock under certain formulas and conditions specified by the issuer
of the stock

Conveyance: Most commonly refers to the transfer of title to property
between parties by deed. The term may also include most of the instruments
with which an interest in real estate is created, mortgaged or assigned.

Core properties: The major property types - specifically office,
retail, industrial and multifamily. Core assets tend to be built within the
past five years or recently renovated. They are substantially leased (90
percent or better) with higher-credit tenants and well-structured long-term
leases with the majority fairly early in the term of the lease. Core assets
generate good, stable income that, together with potential appreciation, is
expected to generate total returns in the 10 percent to 12 percent range.

Cost-approach improvement value: The current cost to construct a
reproduction of, or replacement for, the existing structure less an estimate
for accrued depreciation

Cost-approach land value: The estimated value of the fee simple
interest in the land as if vacant and available for development to its
highest and best use

Cost-of-sale percentage: An estimate of the costs to sell an
investment representing brokerage commissions, closing costs, fees and other
necessary disposition expenses

Coupon: The nominal interest rate charged to the borrower on a
promissory note or mortgage

Covenant: A written agreement inserted into deeds or other legal
instruments stipulating performance or non-performance of certain acts, or
use or non-use of a property and/or land

Credit enhancement: The credit support needed in addition to the
mortgage collateral to achieve a desired credit rating on mortgage-backed
securities. The forms of credit enhancement most often employed are
subordination, over-collateralization, reserve funds, corporate guarantees
and letters of credit.

Cross-collateralization: A grouping of mortgages or properties that
serves to jointly secure one debt obligation

Cross-defaulting: Allows the trustee to call all loans in a group
into default when any single loan is in default

Cumulative discount rate: Expressed as a percentage of base rent, it
is the interest rate used in finding present values that takes into account
all landlord lease concessions.

Current occupancy: The current leased portion of a building or
property expressed as a percentage of its total area or units

Current yield: For CMBS, the coupon divided by the price

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Deal structure: With regard to the financing of an acquisition,
deals can be unleveraged, leveraged, traditional debt, participating debt,
participating/convertible debt or joint ventures.

Debt service: The outlay necessary to meet all interest and principal
payments during a given period.

Debt service coverage ratio (DSCR): The annual net operating income
from a property divided by annual cost of debt service. A DSCR below 1 means
the property is generating insufficient cash flow to cover debt payments.

Dedicate: To appropriate private property to public ownership for a
public use

Deed: A legal instrument transferring title to real property from the
seller to the buyer upon the sale of such property

Deed in lieu of foreclosure: A deed given by an owner/borrower to a
lender to satisfy a mortgage debt and avoid foreclosure

Deed of trust: An instrument used in place of a mortgage by which
real property is transferred to a trustee to secure repayment of a debt

Default: The general failure to perform a legal or contractual duty
or to discharge an obligation when due

Deferred maintenance account: An account a borrower is required to
fund that provides for maintenance of a property

Deficiency judgment: Imposition of personal liability on a borrower
for the unpaid balance of mortgage debt after a foreclosure has failed to
yield the full amount of the debt

Defined-benefit plan: An employee’s benefits are defined, either as a
fixed amount or a percentage of the beneficiary’s salary at the time of
retirement. Pension plans, Health and Welfare plans, and some Keogh plans
are established as defined benefit plans.

Defined-contribution plan: An employee’s benefits at retirement are
determined by the amount contributed by the employer and/or the employee
during his or her employment tenure, and by the actual investment earnings
on those contributions over the life of the fund. Examples include 401(k),
thrift plans and profit sharing plans.

Demising wall: The partition wall that separates one tenant’s space
from another or from the building’s common areas

Depreciation: A decrease or loss in property value due to wear, age
or other cause. In accounting, depreciation is a periodic allowance made for
this real or implied loss.

Derivative securities: Securities that are created artificially,
i.e., derived from other financial instruments. In the context of CMBS, the
most common derivative security is the interest-only strip.

Design/build: A system in which a single entity is responsible for
both the design and construction

Discount rate: A yield rate used to convert future payments or
receipts into present value

Discretion: The level of authority granted to an adviser or manager
over the investment and management of a client’s capital. A fully
discretionary account typically is defined as one in which the adviser or
manager has total ability to invest and manage a client’s capital without
prior approval of the client.

Distraint: The act of seizing personal property of a tenant in
default based on the right and interest a landlord has in the property

Diversification: The process of consummating individual investments
in a manner that insulates a portfolio against the risk of reduced yield or
capital loss, accomplished by allocating individual investments among a
variety of asset types, each with different characteristics

Dividend: Cash or stock distribution paid to holders of common stock.
REITs must pay at least 90 percent of their taxable income in the form of

Dividend yield: The annual dividend rate for a security expressed as
a percent of its market price (annual dividend/price = yield)

Dividend-ex date: The first date on which a person purchasing the
stock is no longer eligible to receive the most recently announced dividend

Dollar stop: An agreed dollar amount of taxes and operating expense
each tenant will pay on a prorated basis

DOWNREIT: An organizational structure that makes it possible for
REITs to buy properties using partnership units. The effect is the same as
an UPREIT, however, the DOWNREIT is subordinate to the REIT itself, hence
the name.

Due diligence: Activities carried out by a prospective purchaser or
mortgager of real property to confirm that the property is as represented by
the seller and is not subject to environmental or other problems. In the
case of an IPO registration statement, due diligence is a reasonable
investigation by the parties involved to confirm that all the statements
within the document are true and that no material facts are omitted.

Due on sale: A covenant that makes a mortgage due if the property is
sold before the maturity date

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Earnest money: The monetary advance of part of the purchase price
to indicate the intention and ability of the buyer to carry out the contract

Easement: A right created by grant, reservation, agreement,
prescription or necessary implication to use someone else’s property

Economic feasibility: The feasibility of a building or project in
terms of costs and revenue, with excess revenue establishing the degree of

Economic rent: The market rental value of a property at a given point
in time

Effective date: The date on which a registration statement becomes
effective and the sale of securities can commence

Effective gross income (EGI): The total income from a property
generated by rents and other sources, less a vacancy factor estimated to be
appropriate for the property. EGI is expressed as collected income before
expenses and debt service.

Effective gross rent (EGR): The net rent generated, after adjusting
for tenant improvements and other capital costs, lease commissions and other
sales expenses

Effective rent: The actual rental rate to be 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

Electronic Authentication: Any of several methods used to provide
proof that a particular document received electronically is genuine, has
arrived unaltered and came from the source indicated

Eminent domain: A power to acquire by condemnation private property
for public use in return for just compensation

Encroachment: The intrusion of a structure that extends, without
permission, over a property line, easement boundary or building setback line

Encumbrance: A right to, or interest in, real property held by
someone other than the owner that does not prevent the transfer of fee title

Environmental impact statement: Documents required by federal and
state laws to accompany proposals for major projects and programs that will
likely have an impact on the surrounding environment

Equity: The residual value of a property beyond mortgage or liability

ERISA (Employee Retirement Income Security Act): Legislation passed
in 1974 and administered by the Department of Labor that controls the
investment activities primarily of corporate and union pension plans. More
public pension funds are adopting ERISA-like standards.

Escalation clause: A clause in a lease that provides for the rent to
be increased to reflect changes in expenses paid by the landlord such as
real estate taxes and operating costs

Escrow agreement: A written agreement made between an escrow agent
and the parties to a contract setting forth the basic obligations of the
parties, describing the money (or other things of value) to be deposited in
escrow, and instructing the escrow agent concerning the disposition of the
monies deposited

Estoppel certificate: A signed statement certifying that certain
statements of fact are correct as of the date of the statement and can be
relied upon by a third party, including a prospective lender or purchaser

Exclusive agency listing: A written agreement between a real estate
broker and a property owner in which the owner promises to pay a fee or
commission to the broker if specified real property is leased during the
listing period

Exit strategy: Strategy available to investors when they desire to
liquidate all or part of their investment

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Face rental rate: The asking rental rate published by the

Facility space: The floor area in hospitality properties dedicated to
operating departments such as restaurants, health clubs and gift shops that
service multiple guests or the general public on an interactive basis not
directly related to room occupancy

FAD (funds available for distribution): Funds from operations less
deductions for cash expenditures for leasing commissions and tenant
improvement costs

FAD multiple: Share price of a REIT divided by its funds available
for distribution

Fair market value: The sale price at which a property would change
hands between a willing buyer and willing seller, neither being under any
compulsion to buy or sell and both having reasonable knowledge of the
relevant facts

Fannie Mae (FNMA): The Federal National Mortgage Association - A
quasi-governmental corporation authorized to sell debentures in order to
supplement private mortgage funds by buying and selling FHA (Federal Housing
Administration) and VA (Veterans Affairs) loans at market prices.

Fee simple interest: When an owners owns all the rights in a real
estate parcel

FFO (funds from operations): A ratio intended to highlight the amount
of cash generated by a company’s real estate portfolio relative to its total
operating cash flow. FFO is equal to net income, excluding gains (or losses)
from debt restructuring and sales of property, plus depreciation and

FFO multiple: Share price of a REIT divided by its funds from

Fiduciary: The Employee Retirement Income Security Act (ERISA)
defines a fiduciary as any person who exercises any discretionary authority
or control over a plan’s asset management, administration or disposition, or
renders investment advice for a fee or other compensation with respect to a
plan’s assets. Fiduciaries may include staff, trustees, investment board
members, administrators, consultants, actuaries and investment managers.
ERISA permits civil action to be brought by a beneficiary against any
fiduciary that has breached its fiduciary duty. Fiduciaries can be held
personally liable for any losses to a plan resulting from such breach.

Finance charge: The amount paid for the privilege of deferring
payment of goods or services purchased, including any charges payable by the
purchaser as a condition of the loan

First mortgage: The senior mortgage that, by reason of its position,
has priority over all junior encumbrances. The holder has a priority right
to payment in the event of default.

First refusal right, or right of first refusal: A lease clause giving
a tenant the first opportunity to buy a property or lease additional space
in a property at the same price and on the same terms and conditions as
those contained in a third-party offer that the owner has expressed a
willingness to accept

First-generation space: Generally refers to new space that is
currently available for lease and has never before been occupied by a tenant

First-loss position: The position in a security that will suffer the
first economic loss if the underlying assets lose value or are foreclosed
on. The first-loss position carries a higher risk and a higher yield.

Fixed costs: Costs that do not fluctuate in proportion to the level
of sales or production

Fixed rate: An interest rate that remains constant over the term of the loan

Flat fee: A fee paid to an adviser or manager for managing a
portfolio of real estate assets, typically stated as a flat percentage of
gross asset value, net asset value or invested capital

Flex space: A building that provides a configuration allowing
occupants a flexible amount of office or showroom space in combination with
manufacturing, laboratory, warehouse, distribution, etc.

Float: The number of freely traded shares in the hands of the public

Floor area ratio (FAR): The ratio of the gross square footage of a
building to the square footage of the land on which it is situated

Force majeure: A force that cannot be controlled by the parties to a
contract and prevents them from complying with the provisions of the
contract. This includes acts of God such as a flood or a hurricane, or acts
of man such as a strike, fire or war.

Foreclosure: The process by which the trustee or servicer takes over
a property from a borrower on behalf of the lender

Forward commitments: Contractual obligations to perform certain
financing activities upon the satisfaction of any stated conditions. Usually
used to describe a lender’s obligation to fund a mortgage.

Four quadrants of the real estate capital markets

Private equity - Direct real estate investments acquired privately

Public equity - REITs and other publicly traded real estate operating

Private debt - Whole loan mortgages

Public debt - Commercial mortgage-backed securities and other securitized
forms of whole loan mortgage interests

Freddie Mac (FHLMC): Federal Home Loan Mortgage Corp. - a corporation
established by the Federal Home Loan Bank to issue mortgage-backed

Full recourse: A loan on which an endorser or guarantor is liable in
the event of default by the borrower

Full-service rent: An all-inclusive rental rate that includes
operating expenses and real estate taxes for the first year. The tenant is
generally still responsible for any increase in operating expenses over the
base year amount.

Fully diluted shares: The number of shares of common stock that would
be outstanding if all convertible securities were converted to common shares

Future proposed space: Space in a proposed commercial development
that is not yet under construction or where no construction start date has
been set. It also may refer to the future phases of a multi-phase project
not yet built.

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General contractor: The prime contractor who contracts for the
construction of an entire building or project, rather than just a portion of
the work. The general contractor hires subcontractors, coordinates all work
and is responsible for payment to subcontractors.

General partner: A member of a partnership who has authority to bind
the partnership and shares in the profits and losses of the partnership

Going-in capitalization rate: The capitalization rate computed by
dividing the projected first year’s net operating income by the value of the

Graduated lease: A lease, generally long-term in nature, in which
rent varies depending upon future contingencies

Grant: To bestow or transfer an interest in real property by deed or
other instrument

Grantee: One to whom a grant is made

Grantor: The person making the grant

Gross building area: The sum of areas at each floor level, including
basements, mezzanines and penthouses included within the principal outside
faces of the exterior walls and neglecting architectural setbacks or

Gross investment in real estate (historic cost): The total amount of
equity and debt invested in real estate investments, including the gross
purchase price, all acquisition fees and costs, plus subsequent capital
improvements, less proceeds from sales and partial sales

Gross leasable area: The portion of total floor area designed for
tenants’ occupancy and exclusive use, including storage areas. It is the
total area that produces rental income.

Gross lease: A lease in which the tenant pays a flat sum for rent out
of which the landlord must pay all expenses such as taxes, insurance,
maintenance, utilities, etc.

Gross real estate asset value: The market value of the total real
estate investments under management in a fund or individual accounts. It
typically includes the total value of all equity positions, debt positions
and joint venture ownership positions, including the amount of any mortgages
or notes payable related to those assets.

Gross real estate investment value: The market value of real estate
investments held in a portfolio without regard to debt, equal to the total
of real estate investments as shown on a statement of assets and liabilities
on a market-value basis

Gross returns: Returns generated from the operation of real estate
without dilution for adviser or manager fees

Ground rent: Rent paid to the owner for use of land, normally on
which to build a building. Generally, the arrangement is that of a long-term
lease (e.g. 99 years) with the lessor retaining title to the land.

Guarantor: One who makes a guaranty

Guaranty: Agreement whereby the guarantor assures satisfaction of the
debt of another or performs the obligation of another if and when the debtor
fails to do so

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Hard cost: The cost of actually constructing property

High-rise: In the central business district, this could mean a
building higher than 25 stories above ground level, but in suburban markets,
it generally refers to buildings higher than seven or eight stories.

Highest and best use: The reasonably probable and legal use of vacant
land or an improved property that is physically possible, appropriately
supported, financially feasible and that results in the highest value

Holdbacks: A portion of a loan commitment that is not funded until an
additional requirement is met, such as completion of construction

Holding period: The length of time an investor expects to own a
property from purchase to sale

Hold-over tenant: A tenant retaining possession of the leased
premises after the expiration of a lease

HVAC: The acronym for heating, ventilating and air conditioning

Hybrid debt: A mortgage position with equity-like participation
features in both cash flow and the appreciation of the property at the time
of sale or refinance

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Implied cap rate: Net operating income divided by the sum of a
REIT’s equity market capitalization and its total outstanding debt

Improvements: In the context of leasing, the term typically refers to
the improvements made to or inside a building but may include any permanent
structure or other development, such as a street, sidewalk, utilities, etc.

Incentive fee: Applies to fee structures where the amount of the fee
that is charged is determined by the performance of the real estate assets
under management

Income capitalization value: The indication of value derived for an
income-producing property by converting its anticipated benefits into
property value through direct capitalization of expected income or by
discounting the annual cash flows for the holding period at a specified
yield rate

Income property: Real estate that is owned or operated to produce

Income return: The percentage of the total return that is generated
by the income from operations of a property, fund or account

Indirect costs: Development costs other than direct material and
labor costs that are directly related to the construction of improvements,
including administrative and office expenses, commissions, architectural,
engineering and financing costs

Individual account management: Accounts established for individual
plan sponsors or other investors for investment in real estate, where a firm
acts as an adviser in acquiring and/or managing a direct real estate

Inflation: The annual rate at which consumer prices increase

Inflation hedge: An investment that tends to increase in value at a
rate greater than inflation and helps contribute to the preservation of the
purchasing power of a portfolio

Initial public offering (IPO): The first time a private company
offers securities for sale to the public

Institutional-grade property: Various types of real estate properties
generally owned or financed by tax-exempt institutional investors. Core
investments typically include office, retail, industrial and apartments.
Specialty investments include hotels, congregate care facilities, land
beneath existing improvements, vacant land, mixed-use properties (i.e., a
property containing at least two property types) and mobile home parks.

Insurance company separate account: A real estate investment vehicle
that may only be offered by life insurance companies. This ownership
arrangement enables an ERISA-governed fund to avoid the creation of
unrelated taxable income for certain types of property investments and
investment structures.

Interest: The price paid for the use of capital

Interest-only strip: A derivative security consisting of all or part
of the interest portion of the underlying loan or security

Internal rate of return (IRR): A discounted cash-flow analysis
calculation used to determine the potential total return of a real estate
asset during an anticipated holding period

Inventory: All space within a certain proscribed market without
regard to its availability or condition

Investment committee: The governing body overseeing corporate pension
investments. Also, the subcommittee of a board of trustees charged with
developing investment policy for board approval.

Investment manager: Any company or individual that assumes discretion
over a specified amount of real estate capital, invests that capital in
assets via a separate account, co-investment program or commingled fund, and
provides asset management

Investment policy: A document that formalizes an institution’s
guidelines for investment and asset management. An investment policy
typically will contain goals and objectives; core and specialty investment
criteria and methodology; and guidelines for asset management, investment
advisory contracting, fees and utilization of consultants and other outside

Investment strategy: The investment parameters used by the manager in
structuring the portfolio and selecting the real estate assets for a fund or
account. This includes a description of the types, locations and sizes of
properties to be considered, the ownership positions that will be used, and
the stages of the investment lifecycle.

Investment structures: Unleveraged acquisitions, leveraged
acquisitions, traditional debt, participating debt, convertible debt,
triple-net leases and joint ventures

Investment-grade CMBS: Commercial mortgage-backed securities with
ratings of “AAA,” “AA,” “A” or “BBB”

Investor status: In reporting to clients and consultants, all
investors are divided into two categories: taxable and tax-exempt. The
tax-exempt category includes all qualified pension and retirement accounts.
The taxable category includes all other accounts under management, including
off-shore capital.

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Joint venture: An investment entity formed by one or more
entities to acquire or develop and manage real property and/or other assets

Just compensation: Compensation that is fair to both the owner and
the public when property is taken for public use through condemnation
(eminent domain)

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Landlord’s warrant: A warrant from a landlord to levy upon a
tenant’s personal property (e.g., furniture, etc.) and to sell this property
at a public sale to compel payment of the rent or the observance of some
other stipulation in the lease

Lead manager: The investment banking firm that handles the principal
responsibilities for coordinating the new issuance of securities

Lease: An agreement whereby the owner of real property gives the
right of possession to another for a specified period of time and for a
specified consideration

Lease agreement: The formal legal document entered into between a
landlord and a tenant to reflect the terms of the negotiations between them

Lease commencement date: The date usually constitutes the
commencement of the term of the lease, whether or not the tenant has
actually taken possession, so long as beneficial occupancy is possible.

Lease expiration exposure schedule: A listing of the total square
footage of all current leases that expire in each of the next five years,
without regard to renewal options

Leasehold interest: The right to hold or use property for a fixed
period of time at a given price, without transfer of ownership

Legal description: A geographical description identifying a parcel by
government survey, metes and bounds, or lot numbers of a recorded plat
including a description of any portion that is subject to an easement or

Legal owner: The legal owner has title to the property, although the
title may actually carry no rights to the property other than as a lien.

Letter of credit: A commitment by a bank or other person that the
issuer will honor drafts or other demands for payment upon full compliance
with the conditions specified in the letter of credit. Letters of credit are
often used in place of cash deposited with the landlord in satisfying the
security deposit provisions of a lease.

Letter of intent: A preliminary agreement stating the proposed terms
for a final contract

Leverage: The use of credit to finance a portion of the costs of
purchasing or developing a real estate investment. Positive leverage occurs
when the interest rate is lower than the capitalization rate or projected
internal rate of return. Negative leverage occurs when the current return on
equity is diminished by the employment of debt.

LIBOR (London InterBank Offered Rate): The interest rate offered on
Eurodollar deposits traded between banks, also called swaps

Lien: A claim or encumbrance against property used to secure a debt,
a charge or the performance of some act

Lien waiver: Waiver of a mechanic’s lien rights that is often
required before the general contractor can receive a draw under the payment
provisions of a construction contract. It may also be required before the
owner can receive a draw on a construction loan.

Lifecycle: The various developmental stages of a property:
pre-development, development, leasing, operating and redevelopment (or

Like-kind property: A term used in an exchange of property held for
productive use in a trade or business or for investment. Unless cash is
received, the tax consequences of the exchange are postponed pursuant to
Section 1031 of the Internal Revenue Code.

Limited partnership: A type of partnership comprised of one or more
general partners who manage the business and are personally liable for
partnership debts, and one or more limited partners who contribute capital
and share in profits but who take no part in running the business and incur
no liability above the amount contributed

Liquidity: The ease with which assets can be converted to cash
without loss in value

Listing agreement: An agreement between the owner of a property and a
real estate broker giving the broker authorization to attempt to sell or
lease the property at a certain price and terms in return for a commission,
set fee or other form of compensation

Loan-to-value ratio (LTV): The ratio of the value of the loan
principal divided by the property’s appraised value

Lock-box structure: A structure whereby the rental or debt-service
payments are sent directly from the tenant or mortgagor to the trustee

Lockout: The period during which a loan may not be prepaid.

Long-term lease: In most markets, this refers to a lease whose term
is at least three years from initial signing to the date of expiration or

Loss severity: The percentage of principal lost when a loan is

Lot: Generally one of several contiguous parcels of land making up a
fractional part or subdivision of a block, the boundaries of which are shown
on recorded maps and plats

Low-rise: A building with fewer than four stories above ground level

Lump-sum contract: A type of construction contract requiring the
general contractor to complete a building or project for a fixed cost
normally established by competitive bidding. The contractor absorbs any loss
or retains any profit.

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Magic page: Included in the offering prospectus, the magic page
is a projected growth story, describing how a new REIT will accomplish its
future expectations for funds from operations or funds available for

Maker: One who creates or executes a promissory note and promises to
pay the note when it becomes due

Mark to market: The process of increasing or decreasing the original
investment cost or value of a property asset or portfolio to a level
estimated to be the current market value

Market capitalization: One measure of the value of a company; it is
calculated by multiplying the current share price by the current number of
shares outstanding.

Market rental rates: The rental income that a property most likely
would command in the open market, indicated by the current rents asked and
paid for comparable space

Market study: A forecast of future demand for a certain type of real
estate project that includes an estimate of the square footage that can be
absorbed and the rents that can be charged

Market value: The highest price a property would command in a
competitive and open market under all conditions requisite to a fair sale

Marketable title: A title free from encumbrances that could be
readily marketed to a willing purchaser

Master lease: A primary lease that controls subsequent leases and may
cover more property than subsequent leases

Master servicer: An institution that acts on behalf of a trustee for
the benefit of security holders in collecting funds from a borrower,
advancing funds in the event of delinquencies and, in the event of default,
taking a property through foreclosure

Maturity date: The date when the total principal balance comes due

Mechanic’s lien: A claim created for the purpose of securing priority
of payment of the price and value of work performed and materials furnished
in constructing, repairing or improving a building or other structure

Meeting space: In hotels, space made available to the public to rent
for meeting, conference or banquet uses

Metes and bounds: The boundary lines of land described by listing the
compass directions and distances of the boundaries. Originally, metes
referred to distance and bounds referred to direction.

Mezzanine financing: Mezzanine financing is somewhere between equity
and debt. It is that piece of the capital structure that has senior debt
above it and equity below it. There is both equity and debt mezzanine
financing, and it can be done at the asset or company level, or it could be
unrated tranches of CMBS. Returns are generally in the mid- to high-teens.

Mid-rise: A building with four to eight stories above ground level.
In a central business district this might extend to buildings up to 25

Mixed-use: Space within a building or project providing for more than one use

Modern portfolio theory (MPT): An approach to quantifying risk and
return in a portfolio of assets. Developed in 1959 by Harry Markowitz, MPT
is the foundation for present-day principles of investment diversification.
It emphasizes the portfolio rather than individual assets, and how assets
perform in relation to each other based on the assumption that investors can
benefit from diversification when asset class returns do not move in lock
step with one another.

Mortgage: A legal document by which real property is pledged as
security for repayment of a loan until the debt is repaid in full

Mortgage constant: The ratio of an amortizing mortgage payment to the
outstanding mortgage balance

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NAREIT (National Association of Real Estate Investment Trusts):
The national, not-for-profit trade organization that represents the real
estate investment trust industry

NCREIF (National Council of Real Estate Investment Fiduciaries): An
association of real estate professionals who serve on working committees,
sponsor research articles, seminars and symposiums, and produce the NCREIF
Property Index

NCREIF Property Index (NPI): The index reports quarterly and annual
returns consisting of income and appreciation components. The index is based
on data collected from the voting members of NCREIF. Specific property-type
subindices include apartment, office, retail, industrial and hotel; regional
subindices include West, East, South and Midwest.

Negative amortization: The accrual feature found in numerous
participating debt structures that allows an investor to pay, for an initial
period of time, an interest rate below the contract rate stated in loan

Net asset value (NAV): The value of an individual asset or portfolio
of real estate properties net of leveraging or joint venture interests

Net asset value per share: The current value of a REIT’s assets
divided by shares outstanding

Net assets: Total assets less total liabilities on a market-value

Net cash flow: Generally determined by net income plus depreciation
less principal payments on long-term mortgages

Net investment in real estate: Gross investment in real estate less
the outstanding debt balance

Net investment income: The income or loss of a portfolio or entity
resulting after deducting all expenses, including portfolio and asset
management fees, but before realized and unrealized gains and losses on

Net operating income (NOI): A before-tax computation of gross revenue
less operating expenses and an allowance for anticipated vacancy. It is a
key indicator of financial strength.

Net present value (NPV): Net present value usually is employed to
evaluate the relative merits of two or more investment alternatives. It is
calculated as the sum of the total present value of incremental future cash
flows plus the present value of estimated proceeds from sale. Whenever the
net present value is greater than zero, an investment opportunity generally
is considered to have merit.

Net purchase price: Gross purchase price less associated debt

Net real estate investment value: The market value of all real estate
less property-level debt

Net returns: Returns to investors net of fees to advisers or managers

Net sales proceeds: Proceeds from the sale of an asset or part of an
asset less brokerage commissions, closing costs and market expenses

Net square footage: The space required for a function or staff

Nominal yield: The yield to investors before adjustments for fees,
inflation or risk

Non-compete clause: A clause that can be inserted into a lease
specifying that the business of the tenant is exclusive in the property and
that no other tenant operating the same or similar type of business can
occupy space in the building. This clause benefits service-oriented
businesses desiring exclusive access to the building’s population.

Non-discretionary funds: Funds allocated to an investment manager
requiring the investor’s approval on each transaction

Non-investment-grade CMBS: Securities rated “BB” or “B,” also
referred to as high-yield CMBS

Non-performing loan: A loan that is unable to meet its contractual
principal and interest payments

Non-recourse debt: A loan that, in the event of a default by the
borrower, limits the lender’s remedies to a foreclosure of the mortgage,
realization on its assignment of leases and rents, and acquisition of the
real estate

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Offer: Term used to describe a stated price or spread to sell
whole loans or securities

Open space: An area of land or water dedicated for public or private
use or enjoyment

Open-end fund: A commingled fund that does not have a finite life,
continually accepts new investor capital and makes new property investments

Operating cost escalation: Although there are many variations of
escalation clauses, all are intended to adjust rents by reference to
external standards such as published indexes, negotiated wage levels, or
expenses related to the ownership and operation of a building.

Operating expense: The actual costs associated with operating a
property, including maintenance, repairs, management, utilities, taxes and

Opportunistic: A phrase generally used by advisers and managers to
describe investments in underperforming and/or undermanaged assets that hold
the expectation of near-term increases in cash flow and value. Total return
objectives for opportunistic strategies tend to be 20 percent or higher.
Opportunistic investments typically involve a high degree of leverage -
typically 60 percent to 100 percent on an asset basis and 60 percent to 80
percent on a portfolio basis.

Originator: A company that sources and underwrites commercial and/or
multifamily mortgage loans

Out-parcel: Individual retail sites in a shopping center

Overallotment: A practice through which underwriters offer and sell
more shares than they have agreed to buy from the issuer

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Parking ratio: Dividing the total rentable square footage of a
building by the building’s total number of parking spaces provides the
amount of rentable square feet per each individual parking space.

Partial sales: The sale of an interest in real estate that is less
than the whole property. This may include a sale of easement rights, parcel
of land or retail pad, or a single building of a multi-building investment.

Partial taking: The taking of part of an owner’s property under the
laws of eminent domain

Participating debt: In addition to collecting a contract interest
rate, participating debt allows the lender to have participatory equity
rights through a share of increases in income and/or increases in residual
value over the loan balance or original value at the time of loan funding.

Party in interest: Under ERISA’s 2002 Modernization Act: Parties in
interest include employers, unions and, in certain circumstances,
fiduciaries. It excludes service providers and their affiliates. Fiduciaries
would only be parties in interest where they act on behalf of a plan sponsor
in entering into a transaction. An affiliate of a party in interest does not
include remote affiliates of employers, unions and fiduciaries (e.g., 10
percent owners), as well as employees of such remote affiliates.

Pass-through certificate: Payments of principal and interest from the
underlying pool of mortgages are passed through to the holders of the

Payout ratio: The percentage of the primary earnings per share,
excluding extraordinary items, paid to common stockholders in the form of
cash dividends during the trailing 12 months

Pension liability: The total amount of capital required to fund
vested pension fund benefits

Percentage rent: Rent payable under a lease that is equal to a
percentage of gross sales or gross revenues received by the tenant. It is
commonly used in retail center leases.

Performance: The quarterly changes in fund or account values
attributable to investment income, realized or unrealized appreciation, and
the total gross return to the investors both before and after investment
management fees. Formulas for calculating performance information are
varied, making comparisons difficult.

Performance bond: A surety bond posted by a contractor guaranteeing
full performance of a contract with the proceeds to be used to complete the
contract or compensate for the owner’s loss in the event of nonperformance

Performance measurement: The process of measuring an investor’s real
estate performance in terms of individual assets, advisers/managers and
portfolios. The scope of performance measurement reports varies among
managers, consultants and plan sponsors.

Performance-based fees: Fees paid to advisers or managers based on
returns to investors, often packaged with a modest acquisition and
asset-management fee structure

Permanent loan: The long-term mortgage on a property

Plan assets: The assets of a pension plan

Plan sponsor: The entity that establishes, contributes to and is
responsible for the administration of an employee benefit plan, often used
interchangeably to describe staff who administer the plan and trustees or
investment board members who govern it

Plat: Map of a specific area, such as a subdivision, that shows the
boundaries of individual lots together with streets and easements

Portfolio management: The portfolio management process involves
formulating, modifying and implementing a real estate investment strategy in
light of an investor’s broader overall investment objectives. It also can be
defined as the management of several properties owned by a single entity.

Portfolio turnover: The average time from the funding of an
investment until it is repaid or sold

Power of sale: Clause inserted in a mortgage or deed of trust giving
the mortgagee (or trustee) the right and power, upon default in the payment
of the debt secured, to advertise and sell the property at public auction

Preferred shares: Stocks that have prior claim on distributions
(and/or assets in the event of dissolution) up to a definite amount before
the common shareholders are entitled to anything. As a form of ownership,
preferred shareholders fall behind all creditors in dissolutions.

Preleased: Space in a proposed building that has been leased before
the start of construction or in advance of the issuance of a certificate of

Prepayment rights: Rights given to the borrower to make partial or
full payment of the total principal balance prior to the maturity date
without penalty

Price to earnings ratio: This ratio is calculated by dividing the
current share price by the sum of the primary earnings per share from
continuing operations, before extraordinary items and accounting changes,
over the past four quarters.

Primary issuance: The initial financing of an issuer

Prime space: Typically refers to first-generation space that is
available for lease

Prime tenant: The major tenant in a building, or the major or anchor
tenant in a shopping center

Principal payments: The return of invested capital to the lender

Private placement: A sale of a security in a manner that is exempt
from the registration rules and requirements of the Securities and Exchange
Commission. An example would be a REIT directly placing an issue of stock
with a pension fund.

Private REIT: An infinite- or finite-life real estate investment
company structured as a real estate investment trust. Shares are placed and
held privately rather than sold and traded publicly.

Pro rata: In the case of a tenant, the proportionate share of
expenses for the maintenance and operation of the property

Production acres: The area of land that can be used in agriculture or
timber operations to produce income, not including areas used for crop or
machinery storage, or other support areas

Prohibited transaction: ERISA defines the following transactions as
prohibited between a pension plan and a party in interest: the sale,
exchange or leasing of any property; a loan or other extension of credit;
and the furnishing of goods or services. Other prohibited transactions
include the transfer of plan assets to a party in interest or use of plan
assets by a party in interest, and the acquisition of employer real property
in excess of limits set by ERISA.

Prudent man rule: The standard to which a fiduciary is held
accountable under ERISA. “Act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent man, acting in a like
capacity and familiar with such matters, would use in the conduct of an
enterprise of a like character and with like aims.”

Punch list: An itemized list documenting incomplete or unsatisfactory
items after the contractor has notified the owner that the tenant space is
substantially complete

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Qualified plan: Any employee benefit plan that is qualified by
the IRS as a tax-exempt plan. Among other requirements, the plan’s assets
must be placed in trust for the sole benefit of the employees covered by the

Quitclaim deed: A deed operating as a release that is intended to
pass any title, interest or claim that the grantor may have in the property,
but not guaranteeing such title is valid

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Rating: Grade, assigned by a rating agency, designating the
credit quality or creditworthiness of the underlying assets

Rating agencies: Independent firms engaged to rate the
creditworthiness of securities for the benefit of investors. The major
rating agencies are Fitch Ratings, Standard & Poor’s and Moody’s Investors

Raw land: Unimproved land that remains in its natural state

Raw space: Unimproved shell space in a building

Real estate fundamentals: The factors driving the value of real
property (i.e., the supply, demand and pricing for land and/or developed
space in a given geographic or economic region or market)

Real property: Land, and generally whatever is erected or affixed to
the land that would be personal property if not attached

Real rate of return: Yield to investors net of an inflationary
factor. The formula for calculating the real rate of return is [(1 + nominal
yield) / (1 + inflation rate)] - 1.

Recapture: When the IRS recovers the tax benefit of a deduction or a
credit previously taken by a taxpayer, which is often a factor in
foreclosure because there is a forgiveness of debt. As used in leases, it is
a clause giving the lessor a percentage of profits above a fixed amount of
rent; or in a percentage lease, a clause granting the landlord the right to
terminate the lease if the tenant fails to realize minimum sales.

Recourse: The right of a lender, in the event of default by the
borrower, to recover against the personal assets of a party who is
secondarily liable for the debt

Red herring: The preliminary prospectus for an initial public
offering. Before the registration statement becomes effective, underwriters
may use the preliminary prospectus to market the offering. The preliminary
prospectus, however, must bear a legend printed in red ink stating that the
offering has been filed but is not yet effective.

Regional diversification: Definitions for what constitute various
regions, for diversification purposes, vary among managers, consultants and
plan sponsors. Some boundaries are defined based purely on geography; others
have attempted to define boundaries along economic lines.

Registration statement: Forms filed with the Securities and Exchange
Commission (or the appropriate state regulatory agency) in connection with a
proposed offering of new securities or the listing of outstanding securities
on a national exchange

Rehab: Extensive renovation intended to cure obsolescence of a
building or project

REIT (Real estate investment trust): A business trust or corporation
that combines the capital of many investors to acquire or provide financing
for real estate. A corporation or trust that qualifies for REIT status
generally does not pay corporate income tax to the IRS. Instead, it pays out
at least 90 percent of its taxable income in the form of dividends.

REMIC (Real estate mortgage investment conduit): A product of the Tax
Reform Act of 1986, REMICs are designed to hold a pool of mortgages for the
exclusive purpose of issuing multiple classes of mortgage-backed securities
in a way that avoids a corporate double tax.

Renewal option: A clause giving a tenant the right to extend the term
of a lease

Renewal probability: Used to estimate leasing-related costs and
downtime, it is the average percentage of tenants in a building that are
expected to renew at market rental rates upon the expiration of their

Rent: Compensation or fee paid for the occupancy and use of any
rental property, land, buildings, equipment, etc.

Rent commencement date: The date on which a tenant begins paying rent

Rentable/usable ratio: A building’s total rentable area divided by
its usable area. It represents the tenant’s pro-rata share of the building’s
common areas and can determine the square footage upon which the tenant will
pay rent. The inverse describes the proportion of space that an occupant can
expect to actually use.

Rental concession: What landlords offer tenants to secure their
tenancy. While rental abatement is one form of a concession, there are many
others such as increased tenant improvement allowance, signage, below-market
rental rates and moving allowances.

Rental growth rate: The expected trend in market rental rates over
the period of analysis, expressed as an annual percentage increase

Rent-up period: The period following construction of a new building
when tenants are actively being sought and the project is approaching its
stabilized occupancy

REO (Real estate owned): Real estate owned by a savings institution
as a result of default by borrowers and subsequent foreclosure by the

Replacement cost: The estimated current cost to construct a building
with utility equivalent to the building being appraised, using modern
materials and current standards, design and layout

Replacement reserves: An allowance that provides for the periodic
replacement of building components that wear out more rapidly than the
building itself and must be replaced during the building’s economic life

Request for proposal (RFP): A formal request, issued by a plan
sponsor or its consultant, inviting investment managers to submit
information on their firms’ investment strategy, historical investment
performance, current investment opportunities, investment management fees,
other pension fund client relationships, etc. Firms that meet the
qualifications are requested to make a formal presentation to the board of
trustees and senior staff members. Finalists are chosen at the completion of
this process, and contract negotiation begins.

Reserve account: An account that a borrower has to fund to protect
the lender. Examples include capital expenditure accounts and deferred
maintenance accounts.

Resolution Trust Corp. (RTC): The RTC was established by Congress in
1989 to contain, manage and sell failed savings institutions and recover
taxpayer funds through the management and sale of the institutions’ assets.

Retail investor: When used to describe an investor, retail refers to
the nature of the distribution channel and the market for the services -
selling interests directly to consumers.

Retention rate: The percent of trailing 12-month earnings that have
been ploughed back into the company. It is calculated as 100 minus the
trailing 12-month payout ratio.

Return on assets: The income after taxes for the trailing 12 months
divided by the average total assets, expressed as a percentage

Return on equity: The income available to common stockholders for the
trailing 12 months divided by the average common equity, expressed as a

Return on investments: The trailing 12-month income after taxes
divided by the average total long-term debt, other long-term liabilities and
shareholders equity, expressed as a percentage

Reversion capitalization rate: The capitalization rate used to
determine reversion value

Reversion value: A lump-sum benefit that an investor receives or
expects to receive at the termination of an investment

RevPAR (Revenue per available room): Total room revenue for the
period divided by the average number of available rooms in a hospitality

Risk management: A systematic approach to identifying and separating
insurable risks from non-insurable risks, and evaluating the availability
and costs of purchasing third-party insurance

Risk-adjusted rate of return: Used to identify investment
alternatives that can be expected to deliver a positive premium, after
taking into consideration the expected volatility. The risk-adjusted rate of
return is defined as the expected rate of return of a given asset, less the
expected return for T-bills, divided by the expected standard deviation of
the returns for the assets.

Road show: A tour made by executives of a company that plans to go
public, where they travel to various cities to meet with underwriters and
analysts and make presentations regarding their company and IPO. The road
show takes place during the marketing period before the registration
statement becomes effective.

Roll-over risk: The risk that a tenant’s lease will not be renewed

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Sale-leaseback: An arrangement by which the owner-occupant of a
property agrees to sell all or part of the property to an investor, then
lease it back and continue to occupy space as a tenant

Sales comparison value: A value indication derived by comparing the
property being appraised to similar properties that have been sold recently

Second-generation or secondary space: Previously occupied space that becomes
available for lease, either directly from the landlord or as sublease space

Secondary financing: A loan on real property secured by a lien junior
to an existing first mortgage loan

Secondary market: A market where existing mortgage loans are
securitized and then bought and sold to other investors

Secondary, or follow-on, offering: A stock offering made by an
existing public company

Securities and Exchange Commission (SEC): The federal agency that
supervises and oversees the issuance and exchange of public securities

Securitization: The process of converting an illiquid asset, such as
a mortgage loan, into a tradable form, such as mortgage-backed securities

Security deposit: A deposit of money by a tenant to a landlord to
secure performance of a lease. It also can take the form of a letter of
credit or other financial instrument.

Seisen (seizen): Possession of real property under claim of freehold

Self-administered REIT: When members of the management are employees
of the REIT or an entity having essentially the same economic ownership as
the REIT

Self-managed REIT: A REIT whose employees are responsible for
performing property management functions

Senior classes: With regard to securities, describes the classes with
the highest priority to receive the payments from the underlying mortgage

Separate account: A relationship where an investment manager or
adviser is retained by a single pension plan sponsor to source real estate
product under a stated investment policy exclusively for that sponsor

Servicer: An organization that acts on behalf of a trustee for the
benefit of security holders

Setback: The distance from a curb, property line or other reference
point, within which building is prohibited

Shares outstanding: The number of shares of common stock currently
outstanding, less the shares held in treasury

Site analysis: Determines the suitability of a specific parcel of
land for a specific use

Site development: The installation of all necessary improvements made
to a site before a building or project can be constructed on the site

Site plan: A detailed plan that depicts the location of improvements
on a parcel

Slab: The exposed wearing surface laid over the structural support
beams of a building to form the floor(s) of the building

Social investing: Investments driven in whole or in part by social or
political (non-real estate) objectives. Under ERISA, social investing is
economically justified only if proper real estate fundamentals are
considered first.

Soft cost: The portion of an equity investment other than the actual
cost of the improvements themselves that may be tax-deductible in the first

Space plan: A graphic representation of a tenant’s space
requirements, showing wall and door locations, room sizes and sometimes
furniture layouts

Special assessment: Special charges levied against real property for
public improvements that benefit the assessed property

Special servicer: A firm that is employed to work out mortgages that
are either delinquent or in default

Specified investing: Investment in individually specified properties
or portfolios, or investment in commingled funds whose real estate assets
are fully or partially specified prior to the commitment of investor capital

Speculative space: Any tenant space that has not been leased before
the start of construction on a new building

Stabilized net operating income: Projected income less expenses that
are subject to change but have been adjusted to reflect equivalent, stable
property operations

Stabilized occupancy: The optimum range of long-term occupancy that
an income-producing real estate project is expected to achieve after
exposure for leasing in the open market for a reasonable period of time at
terms and conditions comparable to competitive offerings

Step-up lease (graded lease): A lease specifying set increases in
rent at set intervals during the term of the lease

Straight lease (flat lease): A lease specifying a fixed amount of
rent that is to be paid periodically, typically monthly, during the entire
term of the lease

Strip center: Any shopping area comprised of a row of stores but
smaller than a neighborhood center anchored by a grocery store

Subcontractor: A contractor working under and being paid by the
general contractor, often a specialist in nature, such as an electrical
contractor, cement contractor, etc.

Sublessee: A person or identity to whom the rights of use and
occupancy under a lease have been conveyed, while the original lessee
retains primary responsibility for the obligations of the lease

Subordinated classes: With regard to CMBS, describes those classes
with the lowest priority to receive payments from the underlying mortgage

Subordination: The process of sharing the risk of credit losses
disproportionately among two or more classes of securities

Surety: One who voluntarily binds himself to be obligated for the
debt or obligation of another

Surface rights: A right or easement granted with mineral rights,
enabling the possessor of the mineral rights to drill or mine through the

Survey: The process by which a parcel is measured and its boundaries
and contents ascertained

Synthetic lease: A transaction that appears as a lease from an
accounting standpoint but as a loan from a tax standpoint

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Taking: A common synonym for condemnation, or any interference
with private property rights, but it is not essential that there be physical
seizure or appropriation.

Tax base: The assessed valuation of all real property that lies
within a taxing authority’s jurisdiction. When multiplied by the tax rate,
it determines the amount of tax due.

Tax lien: A statutory lien for nonpayment of property taxes that
attaches only to the property upon which the taxes are unpaid

Tax roll: A list or record containing the descriptions of all land
parcels located within the county, the names of the owners or those
receiving the tax bill, assessed values and tax amounts

Tenant (lessee): One who rents real estate from another and holds an
estate by virtue of a lease

Tenant at will: One who holds possession of premises by permission of
the owner or landlord. The characteristics of the lease are an uncertain
duration and the right of either party to terminate on proper notice.

Tenant improvement (TI): Improvements made to the leased premises by
or for a tenant

Tenant improvement (TI) allowance: Defines the fixed amount of money
contributed by the landlord toward tenant improvements. The tenant pays any
of the costs that exceed this amount.

Tenant mix: A phrase used to describe the quality of a property’s
income stream. In multi-tenanted properties, institutional investors
typically prefer a mixture of national credit tenants, regional credit
tenants and local non-credit tenants.

Term: The lifetime of a loan

Time-weighted average annual rate of return: The constant annual
return over a series of years that would compound to the same return as
compounding the actual annual returns for each year in the series

Title: The means whereby the owner has the just and full possession
of real property

Title insurance: A policy issued by a title company that insures
against loss resulting from defects of title to a specifically described
parcel of real property, or from the enforcement of liens existing against
it at the time the title policy is issued

Title search: A review of all recorded documents affecting a specific
piece of property to determine the present condition of title

Total acres: All land area contained within a real estate investment

Total assets: The sum of all gross investments, cash and equivalents,
receivables, and other assets presented on the balance sheet

Total commitment: The full mortgage loan amount that is obligated to
be funded if all stated conditions are met

Total inventory: The total square footage of a type of property
within a geographical area, whether vacant or occupied

Total principal balance: The total amount of debt, including the
original mortgage amount adjusted for subsequent fundings, principal
payments and other unpaid items (e.g., interest) that are allowed to be
added to the principal balance by the mortgage note or by law

Total retail area: Total floor area of a retail center less common
areas. It is the area from which sales are generated and includes any
department stores or other areas (such as banks, restaurants or service
stations) not owned by the center.

Total return: The sum of quarterly income and appreciation returns

Trade fixtures: Personal property that is attached to a structure
that is used in the business. Because this property is part of the business
and not deemed to be part of the real estate, it is typically removable upon
lease termination.

Tranche: A class of securities. CMBS offerings are generally divided
into rated and unrated classes, or tranches, according to seniority and
risk. Higher-rated tranches allow for internal credit enhancements;
lower-rated classes offer higher yields.

Triple net lease: A lease that requires the tenant to pay all
expenses of the property being leased in addition to rent. Typical expenses
covered in such a lease include taxes, insurance, maintenance and utilities.

Trustee: The trustee oversees the flow of funds through the CMBS
structure on behalf of the bondholders. The trustee is responsible for
collecting principal and interest from the servicer, distributing payments
to bondholders and reporting to bondholders.

Turn key project: The construction of a project in which a third
party is responsible for the total completion of a building, or for the
construction of tenant improvements to the customized requirements and
specifications of a future owner or tenant

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Under construction: The period of time after construction has
started but before the certificate of occupancy has been issued

Under contract: The period of time after a seller has accepted a
buyer’s offer to purchase a property and during which the buyer is able to
perform its due diligence and finalize financing arrangements. During this
time, the seller is precluded from entertaining offers from other buyers.

Underwriter: A company, usually an investment banking firm, that
guarantees or participates in a guarantee that an entire issue of stocks or
bonds will be purchased

Unencumbered: Property that is free of liens and other encumbrances

Unimproved land: Most commonly refers to land without improvements or
buildings but also can mean land in its natural state

Unrated classes: Typically the most subordinated classes of CMBS

UPREIT (Umbrella partnership real estate investment trust):
Organizational structure where a REIT’s assets are owned by a holding
company for tax purposes

Usable square footage: The area contained within the demising walls
of the tenant space that equals the net square footage multiplied by the
circulation factor

Use: The specific purpose for which a parcel or a building is
intended to be used or for which it has been designed or arranged

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Vacancy factor: The amount of gross revenue that pro forma income
statements anticipate will be lost because of vacancies, often expressed as
a percentage of the total rentable square footage available in a building or

Vacancy rate: The total amount of available space compared to the
total inventory of space and expressed as a percentage

Vacant space: Existing tenant space currently being marketed for
lease excluding space available for sublease

Value-added: A phrase generally used by advisers and managers to
describe investments in underperforming and/or undermanaged assets. The
objective is to generate 13 percent to 18 percent returns.

Variable-rate: A loan interest rate that varies over the term of the
loan, usually tied to a predetermined index. Also called adjustable-rate.

Variance: Permission that allows a property owner to depart from the
literal requirements of a zoning ordinance that, because of special
circumstances, cause a unique hardship

Virtual storefront: An online business presence for sales

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Waiting period: The time between the initial filing of a
registration statement and its effective date

Weighted-average coupon: The weighted average of the gross interest
rates of the mortgages underlying a pool as of the issue date, with the
balance of each mortgage used as the weighting factor

Weighted-average equity: The denominator of the fraction used to
calculate investment-level income, appreciation and total returns on a
quarterly basis, consisting of net assets at the beginning of the period
adjusted for weighted contributions and distributions

Weighted-average rental rates: The average proportion of unequal
rental rates in two or more buildings within a market

Working drawings: The set of plans for a building or project that
comprise the contract documents that indicate the precise manner in which a
project is to be built

Workout: The process by which a borrower attempts to negotiate with a
lender to restructure the borrower’s debt rather than go through foreclosure

Write-down: The accounting procedure used when the book value of an
asset is adjusted downward to better reflect current market value

Write-off: The accounting procedure used when an asset has been
determined to be uncollectible and is therefore charged as a loss

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Yield: The effective return on an investment, as paid in
dividends or interest

Yield maintenance premium: A penalty, paid by the borrower, designed
to make investors whole in the event of early redemption of principal

Yield spread: The difference in yields between a commercial mortgage
and a benchmark value, typically U.S. Treasuries of the same maturity

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Zoning: The division of a city or town into zones and the
application of regulations having to do with the architectural design and
structural and intended uses of buildings within such zones

Zoning ordinance: The set of laws and regulations controlling the use
of land and construction of improvements in a given area or zone

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